1933 Act Registration No. 33-11351
1940 Act File No. 811-4978
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 34 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 36 [X]
STEIN ROE INVESTMENT TRUST
One South Wacker Drive, Chicago, Illinois 60606
Telephone Number: 1-800-338-2550
Jilaine Hummel Bauer Cameron S. Avery
Executive Vice-President Bell, Boyd & Lloyd
& Secretary Three First National Plaza
Stein Roe Investment Trust Suite 3200
One South Wacker Drive 70 W. Madison Street
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for Service)
It is proposed that this filing will become effective (check
appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on July 1, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
Registrant has elected to register pursuant to Rule 24f-2 an
indefinite number of shares of beneficial interest of the
following series: Stein Roe Growth & Income Fund, Stein Roe Balanced Fund,
Stein Roe Growth Stock Fund, Stein Roe Capital Opportunities
Fund, Stein Roe Special Fund, Stein Roe International Fund, Stein
Roe Young Investor Fund, and Stein Roe Special Venture Fund. The
Rule 24f-2 Notice for the fiscal year ended September 30, 1995 was
filed on November 29, 1995.
<PAGE>
STEIN ROE INVESTMENT TRUST
CROSS REFERENCE SHEET
Item
No. Caption
Part A (Prospectus of Growth & Income Funds and Growth Funds)
1 Front cover
2 Fee Table; Summary
3 (a) Financial Highlights
(b) Financial Highlights
(c) Investment Return
(d) Financial Highlights
4 Organization and Description of Shares; The Funds; How the
Funds Invest; Restrictions on the Funds' Investments; Risks
and Investment Considerations; Portfolio Investments and
Strategies; Summary--Investment Risks
5 (a) Management of the Funds--Trustees and Investment Adviser
(b) Management of the Funds--Trustees and Investment Adviser,
Fees and Expenses
(c) Management of the Funds--Portfolio Managers
(d) Inapplicable
(e) Management of the Funds--Transfer Agent
(f) Management of the Funds--Fees and Expenses; Financial
Highlights
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see Statement of
Additional Information--General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) Summary
(f) Distributions and Income Taxes; Shareholder Services
(g) Distributions and Income Taxes
(h) Inapplicable
7 How to Purchase Shares
(a) Management of the Funds--Distributor
(b) How to Purchase Shares--Purchase Price and Effective Date;
Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
8 (a) How to Redeem Shares; Shareholder Services
(b) How to Purchase Shares--Purchases Through Third Parties
(c) How to Redeem Shares--General Redemption Policies
(d) How to Redeem Shares--Special Redemption Privileges,
General Redemption Policies
9 Inapplicable
Part A (Defined Contribution Plans Prospectuses)
1 Front cover
2 (a) Fee Table
(b) Inapplicable
(c) Inapplicable
3 (a) Financial Highlights
(b) Financial Highlights
(c) Investment Return
(d) Financial Highlights
4 Organization and Description of Shares; The Fund; How the
Fund Invests; Restrictions on the Fund's Investments; Risks
and Investment Considerations; Portfolio Investments and
Strategies
5 (a) Management of the Fund--Trustees and Investment Adviser
(b) Management of the Fund--Trustees and Investment Adviser,
Fees and Expenses
(c) Management of the Fund--Portfolio Managers
(d) Inapplicable
(e) Management of the Fund--Transfer Agent
(f) Management of the Fund--Fees and Expenses; Financial
Highlights
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see Statement of
Additional Information--General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) For More Information
(f) Distributions and Income Taxes
(g) Distributions and Income Taxes
(h) Inapplicable
7 How to Purchase Shares
(a) Management of the Fund--Distributor
(b) How to Purchase Shares; Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
8 (a) How to Redeem Shares
(b) Inapplicable
(c) Inapplicable
(d) Inapplicable
9 Inapplicable
Part A (Prospectuses of Stein Roe International Fund
and Stein Roe Young Investor Fund)
1 Front cover
2 Fee Table; Summary
3 (a) Financial Highlights
(b) Inapplicable
(c) Investment Return
(d) Financial Highlights
4 Organization and Description of Shares; The Fund;
[International Fund ] How the Fund Invests; [Young Investor
Fund] Investment Policies; [International Fund]
Restrictions on the Fund's Investments; [Young Investor
Fund] Investment Restrictions; Portfolio Investments and
Strategies; Risks and Investment Considerations; Summary--
Investment Risks
5 (a) Management of the Fund--Trustees and Investment Adviser
(b) Management of the Fund--Trustees and Investment Adviser,
Fees and Expenses
(c) Management of the Fund--Portfolio Managers
(d) Inapplicable
(e) Management of the Fund--Transfer Agent
(f) Management of the Fund--Fees and Expenses; Financial
Highlights
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see Statement of
Additional Information--General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) Summary
(f) Distributions and Income Taxes; Shareholder Services
(g) Distributions and Income Taxes
(h) Inapplicable
7 How to Purchase Shares
(a) Management of the Fund--Distributor
(b) How to Purchase Shares--Purchase Price and Effective Date;
Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
8 (a) How to Redeem Shares; Shareholder Services
(b) How to Purchase Shares
(c) How to Redeem Shares--General Redemption Policies
(d) How to Redeem Shares--Special Redemption Privileges,
General Redemption Policies
9 Inapplicable
Part B (Statements of Additional Information)
10 Cover page
11 Table of Contents
12 General Information and History
13 Investment Policies; Portfolio Investments and Strategies;
Investment Restrictions
14 Management
15(a) Inapplicable
(b) Principal Shareholders
(c) Principal Shareholders
16(a) Investment Advisory Services; Management; see prospectus:
Management of the Fund[s]
(b) Investment Advisory Services
(c) Inapplicable
(d) Investment Advisory Services
(e) Inapplicable
(f) Inapplicable
(g) Inapplicable
(h) Custodian; Independent Public Accountants
(i) Transfer Agent
17(a) Portfolio Transactions
(b) Inapplicable
(c) Portfolio Transactions
(d) Portfolio Transactions
(e) Inapplicable
18 General Information and History
19(a) Purchases and Redemptions; see prospectus: How to Purchase
Shares, How to Redeem Shares, Shareholder Services
(b) Purchases and Redemptions; see prospectus: Net Asset Value
(c) Purchases and Redemptions
20 Additional Income Tax Considerations; Portfolio Investments
and Strategies--Taxation of Options and Futures
21(a) Distributor
(b) Inapplicable
(c) Inapplicable
22(a) Inapplicable
(b) Investment Performance
23 Financial Statements
Part C
24 Financial Statements and Exhibits
25 Persons Controlled By or Under Common Control with Registrant
26 Number of Holders of Securities
27 Indemnification
28 Business and Other Connections of Investment Adviser
29 Principal Underwriters
30 Location of Accounts and Records
31 Management Services
32 Undertakings
<PAGE> 1
GROWTH & INCOME FUND (formerly named SteinRoe Prime Equities)
seeks to provide both growth of capital and current income.
BALANCED FUND (formerly named Stein Roe Total Return Fund) seeks
long-term growth of capital and current income, consistent with
reasonable investment risk.
GROWTH STOCK FUND seeks long-term capital appreciation by
investing in common stock and other equity-type securities.
SPECIAL FUND seeks capital appreciation by investing in securities
that are considered to have limited downside risk relative to
their potential for above-average growth, including securities of
undervalued, underfollowed, or out-of-favor companies.
SPECIAL VENTURE FUND seeks long-term capital appreciation by
investing primarily in a diversified portfolio of equity
securities of entrepreneurially managed companies. The Fund
emphasizes investments in financially strong small and medium-
sized companies, based principally on management appraisal and
stock valuation.
CAPITAL OPPORTUNITIES FUND seeks long-term capital appreciation by
investing in aggressive growth companies.
Each Fund is a "no-load" fund. There are no sales or redemption
charges, and the Funds have no 12b-1 plans. The Funds are series
of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Funds. Please read it carefully and retain it
for future reference.
A Statement of Additional Information dated July 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at Suite 3200, One South Wacker Drive, Chicago,
Illinois 60606, or by calling 800-338-2550.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is July 1, 1996.
<PAGE> 2
TABLE OF CONTENTS
Page
Summary .................................2
Fee Table ..............................5
Financial Highlights ....................6
The Funds ..............................13
How the Funds Invest ...................14
Growth & Income Fund....................14
Balanced Fund...........................14
Growth Stock Fund.......................14
Special Fund............................15
Special Venture Fund....................15
Capital Opportunities Fund..............15
Portfolio Investments and Strategies ...16
Restrictions on the Funds' Investments..19
Risks and Investment Considerations.....20
How to Purchase Shares .................21
By Check ...............................21
By Wire.................................22
By Electronic Transfer .................23
By Exchange ............................23
Purchase Price and Effective Date ......23
Conditions of Purchase .................23
Purchases Through Third Parties.........23
How to Redeem Shares ...................24
By Written Request .....................24
By Exchange ............................24
Special Redemption Privileges ..........24
General Redemption Policies ............26
Shareholder Services ...................27
Net Asset Value ........................29
Distributions and Income Taxes .........30
Investment Return ......................31
Management of the Funds ................31
Organization and Description of Shares..34
Certificate of Authorization............36
SUMMARY
The mutual funds described in this prospectus are series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. Each Fund is a "no-load" fund. There are no
sales or redemption charges. (See The Funds and Organization and
Description of Shares.) This prospectus is not a solicitation in
any jurisdiction in which the Funds are not registered for sale.
INVESTMENT OBJECTIVES AND POLICIES. GROWTH & INCOME FUND seeks to
provide both growth of capital and current income. It is designed
for investors seeking a diversified portfolio of securities that
fers the opportunity for long-term growth of capital while
also providing a steady stream of income. In seeking to meet this
objective, the Fund invests primarily in well-established
companies whose common stocks are believed to have both the
potential to appreciate in value and to pay dividends to
shareholders.
BALANCED FUND seeks long-term growth of capital and current
income, consistent with reasonable investment risk. The Fund's
assets are allocated among equities, debt securities, and cash.
The portfolio manager determines those allocations using the
Adviser's investment strategists' views regarding economic,
market, and other factors relative to investment opportunities.
GROWTH STOCK FUND seeks long-term capital appreciation by normally
investing at least 65% of its total assets in common stocks and
other equity-type securities that the Adviser believes to have
long-term appreciation possibilities.
SPECIAL FUND invests in securities selected for possible capital
appreciation. Particular emphasis is placed on securities that
are considered to have limited downside risk relative to their
potential for above-average growth--including securities of
undervalued, underfollowed or out-of-favor companies, and
companies that are low-cost producers of goods or services,
financially strong, or run by well-respected managers. The Fund's
investments may include securities of seasoned, established
companies that appear to have appreciation potential, as well as
securities of relatively small, new companies; securities with
limited marketability; new issues of securities; securities of
companies that, in the Adviser's opinion, will benefit from
management change, new technology, new product or service
development, or change in demand; and other securities that the
Adviser believes have capital appreciation possibilities.
SPECIAL VENTURE FUND seeks long-term capital appreciation by
investing primarily in a diversified portfolio of equity
securities of entrepreneurially managed companies that the Adviser
believes represent special opportunities. The Fund emphasizes
investments in financially strong small and medium-sized
companies, based principally on management appraisal and stock
valuation.
CAPITAL OPPORTUNITIES FUND seeks long-term capital appreciation by
investing in aggressive growth companies. An aggressive growth
company, in general, is one that appears to have the ability to
increase its earnings at an above-average rate. These may include
securities of smaller emerging companies as well as securities of
well-seasoned companies of any size that offer strong earnings
growth potential. Such companies may benefit from new products or
services, technological developments, or changes in management.
There can be no guarantee that the Funds will achieve their
investment objectives. Please see How the Funds Invest and
Portfolio Investments and Strategies for further information.
INVESTMENT RISKS. Growth & Income Fund is designed for long-term
investors who desire to participate in the stock market with
moderate investment risk while seeking to limit market volatility.
Balanced Fund is designed for long-term investors who can accept
the fluctuations in portfolio value and other risks associated
with seeking long-term capital appreciation through investments in
securities. Growth Stock Fund and
Special Fund are designed for long-term investors who desire to
participate in the stock market with more investment risk and
volatility than the stock market in general, but with less
investment risk and volatility than aggressive capital
appreciation funds. Special Venture Fund is designed for long-
term investors who want greater return potential than is available
from the stock market in general, and who are willing to tolerate
the greater investment risk and market volatility associated with
investments in small and medium-sized companies. Capital
Opportunities Fund is an aggressive growth fund and is designed
for long-term investors who can accept the fluctuations in
portfolio value and other risks associated with seeking long-term
capital appreciation through investments in common stocks.
Since the Funds may invest in foreign securities, investors should
understand and consider carefully the risks involved in foreign
investing. Investing in foreign securities involves certain
considerations involving both risks and opportunities not
typically associated with investing in U.S. securities. Such
risks include fluctuations in foreign currency exchange rates,
possible imposition of exchange controls, less complete financial
information, political instability, less liquidity, and greater
price volatility.
Please see How the Funds Invest, Portfolio Investments and
Strategies, and Risks and Investment Considerations for further
information.
PURCHASES. The minimum initial investment for each Fund is
$2,500, and additional investments must be at least $100 (only $50
for purchases by electronic transfer). Shares may be purchased by
check, by bank wire, by electronic transfer, or by exchange from
another Stein Roe Fund. For more detailed information, see How to
Purchase Shares.
REDEMPTIONS. For information on redeeming Fund shares, including
the special redemption privileges, see How to Redeem Shares.
NET ASSET VALUE. The purchase and redemption price of a Fund's
shares is its net asset value per share. The net asset value is
determined as of the close of trading on the New York Stock
Exchange. (For more detailed information, see Net Asset Value.)
DISTRIBUTIONS. Dividends for Growth & Income Fund and Balanced
Fund are normally declared and paid quarterly, and dividends for
the other Funds are normally declared and paid annually.
Distributions will be reinvested into your Fund account unless you
elect to have them paid in cash, deposited by electronic transfer
into your bank checking account, or invested in another Stein Roe
Fund account. (See Distributions and Income Taxes and Shareholder
Services.)
ADVISER AND FEES. Stein Roe & Farnham Incorporated (the
"Adviser") provides administrative, management, and investment
advisory services to the Funds. For a description of the Adviser
and the fees paid by the Funds, see Management of the Funds.
If you have any additional questions about the Funds, please feel
free to discuss them with an account representative by calling
800-338-2550.
FEE TABLE
<TABLE>
<CAPTION>
Growth & Growth Special Capital
Income Balanced Stock Special Venture Opportunities
Fund Fund Fund Fund Fund Fund
------- -------- ----- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None None None None
Sales Load Imposed on
Reinvested Dividends None None None None None None
Deferred Sales Load None None None None None None
Redemption Fees* None None None None None None
Exchange Fees None None None None None None
ANNUAL FUND OPERATING EXPENSES
(after fee waiver in
the case of Special Venture
Fund and Special Fund; as a
percentage of average net assets)
Management and Administrative
Fees (after fee waiver
in the case of Special Venture
Fund and Special Fund) 0.75% 0.70% 0.75% 0.79% 0.48% 0.90%
12b-1 Fees None None None None None None
Other Expenses 0.40% 0.37% 0.33% 0.32% 0.77% 0.35%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses
(after fee waiver in the case
of Special Venture Fund
and Special Fund) 1.15% 1.07% 1.08% 1.11% 1.25% 1.25%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
- --------------
*There is a $3.50 charge for wiring redemption proceeds to your bank.
EXAMPLES. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; and (2) redemption at
the end of each time period:
1 year 3 years 5 years 10 years
------ ------- -------- ---------
Growth & Income Fund $12 $37 $63 $140
Balanced Fund 11 34 59 131
Growth Stock Fund 11 34 60 132
Special Fund 11 36 62 136
Special Venture Fund 13 40 69 151
Capital Opportunities Fund 13 40 69 151
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in a Fund. The Funds' transfer agency
fees were changed effective May 1, 1995, and changes in management
and administrative fees became effective on September 1, 1995, for
all Funds except Special Venture Fund. The above table
illustrates expenses that would have been borne by investors in
the last fiscal year assuming that the fee changes had been in
effect for the entire year; in the case of Special Venture Fund,
which had less than one year of operation for the reporting
period, the expenses have been adjusted for the transfer agency
fee increase and annualized.
From time to time, the Adviser may voluntarily absorb certain
expenses of a Fund. The Adviser has agreed to voluntarily waive
its management fee and absorb the expenses of Special Venture Fund
to the extent that such fees and expenses on an annualized basis
exceed 1.25% of its annual average net assets through January 31,
1997, subject to earlier termination by the Adviser on 30 days'
notice. Any such absorption will temporarily lower the Fund's
overall expense ratio and increase its overall return to
investors. Absent such expense undertaking, Management and
Administrative Fees and Total Fund Operating Expenses for Special
Venture Fund would have been 0.90% and 1.67%, respectively.
(Also see Management of the Funds--Fees and Expenses.)
For Special Fund for the 12 months ending June 30, 1997, the
Adviser has agreed to reduce its fee by subtracting 0.5% from the
applicable annual rate of management fee. Absent that waiver, the
Management and Administrative Fees would have been 0.84% and Total
Fund Operating Expenses would have been 1.16%.
For purposes of the Examples above, the figures assume that the
percentage amounts listed for the respective Funds under Annual
Fund Operating Expenses remain the same in each of the periods;
that all income dividends and capital gain distributions are
reinvested in additional Fund shares; and that, for purposes of
management fee breakpoints, net assets remain at the same level as
in the most recently completed fiscal year.
The figures in the Examples are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown in the
Examples and Fee Table is useful in reviewing the Funds' expenses
and in providing a basis for comparison with other mutual funds,
it should not be used for comparison with other investments using
different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The tables below reflect the results of operations of the Funds on
a per-share basis for the periods shown. Information for periods
after December 31, 1987, for Balanced Fund and the tables for the
other Funds have been audited by Arthur Andersen LLP, independent
public accountants, except for the six months ended March 31,
1996, which is unaudited. All of the auditors' reports were
unqualified. These tables should be read in conjunction with the
respective Fund's financial statements and notes thereto. The
Funds' annual report, which may be obtained from the Trust without
charge upon request, contains additional performance information.
BALANCED FUND
<TABLE>
<CAPTION>
Nine Six
Months Months
Years Ended Ended Ended
December 31, Sept. 30, Years Ended September 30, March 31,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $21.37 $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income... 1.41 1.33 1.32 0.97 1.37 1.28 1.32 1.31 1.26 1.15 1.33 0.51
Net realized and
unrealized gains
(losses) on investments. 3.87 2.75 (1.06) 0.45 3.10 (2.92) 4.85 1.48 2.37 (1.06) 2.22 2.21
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations........... 5.28 4.08 0.26 1.42 4.47 (1.64) 6.17 2.79 3.63 0.09 3.55 2.72
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ------
DISTRIBUTIONS
Net investment income... (1.42) (1.35) (1.63) (0.90) (1.34) (1.36) (1.26) (1.34) (1.30) (1.17) (1.23) (0.57)
Net realized capital
gains ................. (0.19) (2.70) (1.45) (0.11) (0.38) (0.73) (0.51) (0.62) (1.67) (0.71) (0.28) (0.70)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions.... (1.61) (4.05) (3.08) (1.01) (1.72) (2.09) (1.77) (1.96) (2.97) (1.88) (1.51) (1.27)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD ......... $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82 $29.27
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets..... 0.77% 0.79% 0.80% *0.87% 0.90% 0.88% 0.87% 0.85% 0.81% 0.83% 0.87% *1.06%
Ratio of net investment
income to average net
assets ................. 6.30% 5.21% 5.12% *5.68% 5.83% 5.36 5.50% 4.94% 4.69% 4.53% 5.14% *3.58%
Portfolio turnover rate. 100% 108% 86% 85% 93% 75% 71% 59% 53% 29% 45% 36%
Average commissions
(per share).......... -- -- -- -- -- -- -- -- -- -- -- $0.0606
Total return........... 25.78% 17.11% 0.74% 6.51% 20.76% (6.86%) 29.67% 11.13% 14.57% 0.36% 14.49% 10.11%
Net assets, end of
period (000 omitted)..$128,676 $149,831 $140,279 $134,225 $144,890 $124,592 $150,689 $173,417 $222,292 $229,274 $228,560 $231,595
</TABLE>
GROWTH & INCOME FUND
<TABLE>
<CAPTION>
Six
Months
Period Ended Ended
Sept. 30, Years Ended September 30, March 31,
1987 (a) 1988 1989 1990 1991 1992 1993 1994 1995 1996
------- ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $10.00 $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.... 0.05 0.17 0.22 0.26 0.26 0.19 0.17 0.18 0.34 0.14
Net realized and
unrealized gains
(losses) on investments. 0.47 (1.64) 2.46 (0.85) 2.17 1.49 2.16 0.40 2.56 1.90
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............ 0.52 (1.47) 2.68 (0.59) 2.43 1.68 2.33 0.58 2.90 2.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income... (0.03) (0.14) (0.22) (0.26) (0.29) (0.18) (0.16) (0.16) (0.20) (0.22)
Net realized capital
gains ................. -- -- -- -- (0.36) (0.35) (0.76) (0.71) (0.59) (1.43)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions... (0.03) (0.14) (0.22) (0.26) (0.65) (0.53) (0.92) (0.87) (0.79) (1.65)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD.......... $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65 $17.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of net expenses
to average net
assets (b)............ *1.91% 1.47% 1.24% 1.08% 1.00% 0.97% 0.88% 0.90% 0.96% *1.16%
Ratio of net investment
income to average net
assets (c)..............*1.43% 2.03% 2.28% 2.40% 2.27% 1.46% 1.23% 1.18% 1.78% *1.68%
Portfolio turnover rate... 32% 105% 63% 51% 48% 40% 50% 85% 70% 9%
Average commissions
(per share)............. -- -- -- -- -- -- -- -- -- $0.0718
Total return............ 5.20% (13.90%) 30.63% (5.25%) 24.12% 14.00% 17.98% 4.03% 21.12% 13.08%
Net assets, end of
period (000 omitted).. $22,863 $23,002 $32,562 $43,446 $54,820 $70,724 $100,365 $129,680 $139,539 $166,138
</TABLE>
GROWTH STOCK FUND
<TABLE>
<CAPTION>
Nine Six
Months Months
Years Ended Ended Ended
December 31, Sept. 30, Years Ended September 30, March 31,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD...... $14.04 $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income...... 0.31 0.26 0.24 0.19 0.34 0.39 0.33 0.18 0.15 0.13 0.12 0.04
Net realized and
unrealized gains (losses)
on investments............ 3.38 2.75 0.46 (0.11) 4.51 (1.17) 5.90 3.01 1.14 0.41 5.60 2.49
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............. 3.69 3.01 0.70 0.08 4.85 (0.78) 6.23 3.19 1.29 0.54 5.72 2.53
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income...... (0.30) (0.25) (0.29) (0.15) (0.34) (0.37) (0.42) (0.16) (0.10) (0.12) (0.15) (0.10)
Net realized capital gains. -- (3.22) (2.71) -- (0.06) -- (0.92) (1.17) (0.95) (1.73) (3.02) (2.33)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions...... (0.30) (3.47) (3.00) (0.15) (0.40) (0.37) (1.34) (1.33) (1.05) (1.85) (3.17) (2.43)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
NET ASSET VALUE,
END OF PERIOD............ $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13 $26.23
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets....... 0.67% 0.67% 0.65% *0.76% 0.77% 0.73% 0.79% 0.92% 0.93% 0.94% 0.99% *1.08%
Ratio of net investment
income to average net
assets .................. 1.89% 1.34% 1.25% *1.62% 2.05% 2.03% 1.63% 0.75% 0.59% 0.50% 0.56% *0.37%
Portfolio turnover rate.... 114% 137% 143% 84% 47% 40% 34% 23% 29% 27% 36% 25%
Average commissions (per
share).................. -- -- -- -- -- -- -- -- -- -- -- $0.0513
Total return ............. 26.35% 16.91% 5.57% 0.54% 33.86% (4.17%) 36.64% 14.37% 5.09% 2.10% 28.18% 10.28%
Net assets, end
of period (000 omitted) $224,371 $226,604 $232,658 $195,641 $206,476 $206,031 $291,767 $372,758 $373,921 $321,502 $360,336 $389,480
</TABLE>
SPECIAL FUND
<TABLE>
<CAPTION>
Nine Six
Months Months
Years Ended Ended Ended
December 31, Sept. 30, Years Ended September 30, March 31,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD........... $14.88 $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVEST-
MENT OPERATIONS
Net investment
income ........... 0.25 0.35 0.23 0.14 0.36 0.42 0.34 0.21 0.17 0.15 0.13 0.02
Net realized and
unrealized gains
(losses) on
investments....... 4.01 2.33 0.12 2.16 5.58 (2.10) 4.55 1.50 5.31 0.33 3.05 2.16
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from invest-
ment operations. 4.26 2.68 0.35 2.30 5.94 (1.68) 4.89 1.71 5.48 0.48 3.18 2.18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment
income ........... (0.19) (0.34) (0.57) (0.01) (0.21) (0.39) (0.34) (0.37) (0.18) (0.21) (0.15) (0.11)
Net realized capital
gains ........... (0.54) (3.80) (3.90) -- (0.06) (2.08) (1.32) (0.31) (1.16) (1.77) (1.31) (1.91)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distribu-
tions......... (0.73) (4.14) (4.47) (0.01) (0.27) (2.47) (1.66) (0.68) (1.34) (1.98) (1.46) (2.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD.... $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26 $25.42
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses
to average net
assets ........... 0.92% 0.92% 0.96% *0.99% 0.96% 1.02% 1.04% 0.99% 0.97% 0.96% 1.02% *1.19%
Ratio of net
investment income
to average net
assets........... 2.07% 1.75% 1.32% *1.31% 2.12% 2.33% 2.11% 0.99% 0.92% 0.91% 0.56% *0.12%
Portfolio turnover
rate .............. 96% 116% 103% 42% 85% 70% 50% 40% 42% 58% 41% 17%
Average commissions
(per share)....... -- -- -- -- -- -- -- -- -- -- -- $0.0500
Total return ..... 29.41% 14.70% 4.27% 17.94% 40.00% (8.78%) 32.18% 8.96% 27.35% 2.02% 14.60% 9.41%
Net assets, end of
period (000
omitted)........$278,082 $253,693 $187,997 $224,628 $322,056 $361,065 $587,259 $626,080 $1,076,818 $1,243,885 $1,201,469 $1,123,079
</TABLE>
SPECIAL VENTURE FUND Six
Period Ended Months Ended
Sept. 30, 1995 (a) March 31, 1996
------------------ --------------
NET ASSET VALUE, BEGINNING OF PERIOD.............. $10.00 $12.60
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.............................. 0.01 (0.01)
Net realized and unrealized gains on investments... 2.67 1.61
------ ------
Total from investment operations................ 2.68 1.60
------ ------
DISTRIBUTIONS
Net investment income............................. (0.03) --
Net realized capital gains ....................... (0.05) (0.57)
------ ------
Total distributions............................. (0.08) (0.57)
------ ------
NET ASSET VALUE, END OF PERIOD.................... $12.60 $13.63
------ ------
------ ------
Ratio of net expenses to average net assets (b)... *1.25% *1.25%
Ratio of net investment income to average
net assets (c).................................. *0.12% *(0.14%)
Portfolio turnover rate........................... 84% 18%
Average commissions (per share).................. -- $0.0212
Total return..................................... 26.96% 13.21%
Net assets, end of period (000 omitted).......... $60,533 $96,797
CAPITAL OPPORTUNITIES FUND (D)
<TABLE>
<CAPTION>
Nine Six
Months Months
Years Ended Ended Ended
December 31, Sept. 30, Years Ended September 30, March 31,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 9.69 $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.... 0.10 0.03 0.03 0.03 0.05 0.06 0.11 0.06 0.01 0.02 0.01 (0.01)
Net realized and
unrealized gains
(losses) on investments. 2.27 1.97 0.62 0.13 3.86 (4.72) 3.73 0.60 3.91 0.34 5.91 5.90
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations........... 2.37 2.00 0.65 0.16 3.91 (4.66) 3.84 0.66 3.92 0.36 5.92 5.89
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income... (0.15) (0.10) (0.05) -- (0.05) (0.06) (0.08) (0.10) (0.04) (0.01) (0.02) (0.01)
Net realized capital
gains.................. -- (0.43) (3.36) -- (0.06) (2.54) (0.08) -- -- -- -- (0.99)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions.... (0.15) (0.53) (3.41) -- (0.11) (2.60) (0.16) (0.10) (0.04) (0.01) (0.02) (1.00)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD.......... $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69 $26.58
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets..... 0.95% 0.95% 0.95% *1.01% 1.09% 1.14% 1.18% 1.06% 1.06% 0.97% 1.05% *1.23%
Ratio of net investment
income to average
net assets............. 0.94% 0.19% 0.18% *0.34% 0.42% 0.43% 1.19% 0.42% 0.09% 0.04% 0.08% *(0.22%)
Portfolio turnover rate.. 90% 116% 133% 164% 245% 171% 69% 46% 55% 46% 60% 12%
Average commissions
per share ............ -- -- -- -- -- -- -- -- -- -- -- $0.0564
Total return............ 24.58% 16.77% 9.38% 1.51% 36.68% (37.51%) 53.51% 5.99% 34.01% 2.31% 37.46% 28.06%
Net assets, end of
period (000 omitted). $176,099 $191,415 $171,973 $194,160 $272,805 $86,342 $129,711 $118,726 $153,101 $175,687 $242,381 $696,081
</TABLE>
*Annualized.
**Unaudited.
(a) From the commencement of operations: March 23, 1987 for Growth
& Income Fund and October 17, 1994 for Special Venture Fund.
(b) If the Funds had paid all of their expenses and there had been
no reimbursement by the Adviser, this ratio would have been
2.49% for the period ended September 30, 1987 and 1.09% for
the year ended September 30, 1990 for Growth & Income Fund;
and 2.87% for the period ended September 30, 1995 and 1.40% for
the period ended March 31, 1996 for Special Venture Fund.
(c) Computed giving effect to the Adviser's expense limitation
undertaking.
(d) For Capital Opportunities Fund, all per share amounts and
Average Shares Outstanding During Period on the debt table
reflect a two-for-one stock split effective August 25, 1995.
(e) For the periods indicated below, bank borrowing activity was
as follows:
Debt
outstanding Average debt Average shares Average
at end of outstanding outstanding debt per
Period period (in during period during period during
Ended thousands) (in thousands) (in thousands) period
- ------------ ----------- ------------ -------------- --------
Balanced
Fund
12/31/86 $-- 2 5,506 $0.0004
Growth Stock
Fund
12/31/85 -- 5 13,977 0.0004
9/30/89 -- 124 11,745 0.0106
Special Fund
12/31/86 -- 203 15,251 0.0133
Capital
Opportunities
Fund
12/31/85 -- 43 17,050 0.0026
12/31/86 -- 55 13,906 0.0039
12/31/87 -- 292 16,008 0.0183
9/30/88 -- 56 17,206 0.0033
9/30/89 -- 422 16,066 0.0263
9/30/90 200 1,042 15,944 0.0654
The Funds had no bank borrowings during any other periods.
THE FUNDS
The mutual funds offered by this prospectus are STEIN ROE GROWTH &
INCOME FUND ("Growth & Income Fund"), STEIN ROE BALANCED FUND
("Balanced Fund"), STEIN ROE GROWTH STOCK FUND ("Growth Stock
Fund"), STEIN ROE SPECIAL FUND ("Special Fund"), STEIN ROE SPECIAL
VENTURE FUND ("Special Venture Fund"), and STEIN ROE CAPITAL
OPPORTUNITIES FUND ("Capital Opportunities Fund") (collectively,
the "Funds"). Each of the Funds is a no-load, diversified "mutual
fund." Mutual funds sell their own shares to investors and use
the money they receive to invest in a portfolio of securities such
as common stocks. A mutual fund allows you to pool your money
with that of other investors in order to obtain professional
investment management. Mutual funds generally make it possible
for you to obtain greater diversification of your investments and
simplify your recordkeeping. The Funds do not impose commissions
or charges when shares are purchased or redeemed.
The Funds are series of the Stein Roe Investment Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Funds. The Adviser also manages and
provides investment advisory services for several other no-load
mutual funds with different investment objectives, including equity
funds, international funds, taxable and tax-exempt bond funds, and
money market funds. To obtain prospectuses and other information
on any of those mutual funds, please call 800-338-2550.
HOW THE FUNDS INVEST
The Funds invest as described below. Further information on
portfolio investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
GROWTH & INCOME FUND.
This Fund's investment objective is to provide both growth of
capital and current income. It is designed for investors seeking
a diversified portfolio of securities that offers the opportunity
for long-term growth of capital while also providing a steady
stream of income.
In seeking to meet this objective, the Fund invests primarily in
well-established companies whose common stocks are believed to
have both the potential to appreciate in value and to pay
dividends to shareholders.
Although it may invest in a broad range of securities (including
common stocks, preferred stocks, securities convertible into or
exchangeable for common stocks, and warrants or rights to purchase
common stocks), normally the Fund will emphasize investments in
equity securities of companies having market capitalizations in
excess of $1 billion. Securities of these well-established
companies are believed to be generally less volatile than those of
companies with smaller capitalizations because companies with
larger capitalizations tend to have experienced management; broad,
highly diversified product lines; deep resources; and easy access
to credit.
BALANCED FUND.
This Fund seeks long-term growth of capital and current income,
consistent with reasonable investment risk. The Fund's assets are
allocated among equities, debt securities, and cash. The
portfolio manager determines those allocations using the Adviser's
investment strategists' views regarding economic, market, and
other factors relative to investment opportunities.
The equity portion of the Fund's portfolio is invested primarily
in well-established companies having market capitalizations in
excess of $1 billion. Fixed-income senior securities will make up
at least 25% of the Fund's total assets. Investments in debt
securities are limited to those that are within the four highest
grades (generally referred to as "investment grade") assigned by
a nationally recognized statistical rating organization or,
if unrated, determined by the Adviser to be of comparable quality.
GROWTH STOCK FUND.
This Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by normally investing
at least 65% of its total assets in common stocks and other
equity-type securities (such as preferred stocks, securities
convertible into or exchangeable for common stocks, and warrants
or rights to purchase common stocks) that, in the opinion of the
Adviser, have long-term appreciation possibilities.
SPECIAL FUND.
This Fund's investment objective is to invest in securities
selected for capital appreciation. Particular emphasis is placed
on securities that are considered to have limited downside risk
relative to their potential for above-average growth--including
securities of undervalued, underfollowed or out-of-favor
companies, and companies that are low-cost producers of goods or
services, financially strong, or run by well-respected managers.
The Fund may invest in securities of seasoned, established
companies that appear to have appreciation potential, as well as
securities of relatively small, new companies. In addition, it
may invest in securities with limited marketability; new issues of
securities; securities of companies that, in the Adviser's
opinion, will benefit from management change, new technology, new
product or service development, or change in demand; and other
securities that the Adviser believes have capital appreciation
possibilities. However, the Fund does not currently intend to
invest, nor has it invested in the past fiscal year, more than 5%
of its net assets in any of these types of securities. Securities
of smaller, newer companies may be subject to greater price
volatility than securities of larger, well-established companies.
In addition, many smaller companies are less well known to the
investing public and may not be as widely followed by the
investment community. Although the Fund invests primarily in
common stocks, it may also invest in other equity-type securities,
including preferred stocks and securities convertible into equity
securities.
SPECIAL VENTURE FUND.
This Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of common stocks and other
equity-type securities (such as preferred stocks, securities
convertible or exchangeable for common stocks, and warrants or
rights to purchase common stocks) of entrepreneurially managed
companies that the Adviser believes represent special
opportunities. The Fund emphasizes investments in financially
strong small and medium-sized companies, based principally on
management appraisal and stock valuation. The Adviser considers
"small" and "medium-sized" companies to be those with market
capitalizations of less than $1 billion and $1 to $3 billion,
respectively.
In both its initial and ongoing appraisals of a company's
management, the Adviser seeks to know both the principal owners
and senior management and to assess their business judgment and
strategies through personal visits. The Adviser favors companies
whose management has an owner/operator, risk-averse orientation
and a demonstrated ability to create wealth for investors.
Attractive company characteristics include unit growth, favorable
cost structures or competitive positions, and financial strength
that enables management to execute business strategies under
difficult conditions. A company is attractively valued when its
stock can be purchased at a meaningful discount to the value of
the underlying business.
CAPITAL OPPORTUNITIES FUND.
This Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by investing in
selected companies that, in the opinion of the Adviser, offer
opportunities for capital appreciation.
The Fund pursues its objective by investing in aggressive growth
companies. An aggressive growth company, in general, is one that
appears to have the ability to increase its earnings at an above-
average rate. These may include securities of smaller emerging
companies as well as securities of well-seasoned companies of any
size that offer strong earnings growth potential. Such companies
may benefit from new products or services, technological
developments, or changes in management. Securities of smaller
companies may be subject to greater price volatility than
securities of larger companies. In addition, many smaller
companies are less well known to the investing public and may not
be as widely followed by the investment community. Although it
invests primarily in common stocks, the Fund may invest in all
types of equity securities, including preferred stocks and
securities convertible into common stocks.
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES. In pursuing its investment objective, each Fund
may invest in debt securities of corporate and governmental
issuers. Investments in debt securities by Growth & Income Fund,
Balanced Fund, and Growth Stock Fund are limited to those that are
rated within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized
statistical rating organization. Investments in unrated debt
securities are limited to those deemed to be of comparable quality
by the Adviser. Securities in the fourth highest grade may
possess speculative characteristics, and changes in economic
conditions are more likely to affect the issuer's capacity to pay
interest and repay principal. If the rating of a security held by
a Fund is lost or reduced below investment grade, the Fund is not
required to dispose of the security--the Adviser will, however,
consider that fact in determining whether that Fund should
continue to hold the security. Special Venture Fund, Capital
Opportunities Fund, and Special Fund may invest up to 35% of their
net assets in debt securities, but do not expect to invest more
than 5% of their net assets in debt securities that are rated
below investment grade.
The risks inherent in debt securities depend primarily on the term
and quality of the obligations in a Fund's portfolio as well as on
market conditions. A decline in the prevailing levels of interest
rates generally increases the value of debt securities.
Conversely, an increase in rates usually reduces the value of debt
securities. Securities that are rated below investment grade are
considered predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal according to the
terms of the obligation, and therefore carry greater investment
risk, including the possibility of issuer default and bankruptcy.
When the Adviser determines that adverse market or economic
conditions exist and considers a temporary defensive position
advisable, the Funds may invest without limitation in high-quality
fixed income securities or hold assets in cash or cash
equivalents.
CONVERTIBLE SECURITIES. By investing in convertible securities, a
Fund obtains the right to benefit from the capital appreciation
potential in the underlying stock upon exercise of the conversion
right, while earning higher current income than would be available
if the stock were purchased directly. In determining whether to
purchase a convertible, the Adviser will consider substantially
the same criteria that would be considered in purchasing the
underlying stock. Although convertible securities purchased by a
Fund are frequently rated investment grade, the Funds also may
purchase unrated securities or securities rated below investment
grade if the securities meet the Adviser's other investment
criteria. Convertible securities rated below investment grade:
- - Tend to be more sensitive to interest rate and economic changes;
- - May be obligations of issuers who are less creditworthy than
issuers of higher quality convertible securities;
- - May be more thinly traded due to the fact that such securities
are less well known to investors than either common stock or
conventional debt securities.
As a result, the Adviser's own investment research and analysis
tends to be more important than other factors in the purchase
of such securities.
FOREIGN SECURITIES. Each Fund may invest in foreign securities.
Other than American Depositary Receipts (ADRs), foreign debt
securities denominated in U.S. dollars, and securities guaranteed
by a U.S. person, each Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks and
Investment Considerations.) The Funds may invest in sponsored or
unsponsored ADRs. In addition to, or in lieu of, such direct
investment, a Fund may construct a synthetic foreign position by
(a) purchasing a debt instrument denominated in one currency,
generally U.S. dollars; and (b) concurrently entering into a
forward contract to deliver a corresponding amount of that
currency in exchange for a different currency on a future date and
at a specified rate of exchange. Because of the availability of a
variety of highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may offer
greater liquidity than direct investment in foreign currency debt
instruments. In connection with the purchase of foreign
securities, the Funds may contract to purchase an amount of
foreign currency sufficient to pay the purchase price of the
securities at the settlement date. Such a contract involves the
risk that the value of the foreign currency may decline relative
to the value of the dollar prior to the settlement date--this risk
is in addition to the risk that the value of the foreign security
purchased may decline. The Funds also may enter into foreign
currency contracts as a hedging technique to limit or reduce
exposure to currency fluctuations. In addition, the Funds may use
options and futures contracts, as described below, to limit or
reduce exposure to currency fluctuations.
As of September 30, 1995, the Funds' holdings of foreign
companies, as a percentage of net assets, were as follows: Growth
& Income Fund, 4.4% (1.5% in foreign securities and 2.9% in ADRs),
Balanced Fund, 5.2% (1.0% in foreign securities and 4.2% in ADRs),
Growth Stock Fund, 6.3% (1.2% in foreign securities and 5.1% in
ADRs), Special Fund, 7.5% (6.0% in foreign securities and 1.5% in
ADRs); Special Venture Fund, 4.9% (4.9% in foreign securities and
none in ADRs); and Capital Opportunities Fund, 2.5% (none in
foreign securities and 2.5% in ADRs).
LENDING PORTFOLIO SECURITIES; WHEN-ISSUED AND DELAYED-DELIVERY
SECURITIES. Each Fund may make loans of its portfolio securities
to broker-dealers and banks subject to certain restrictions
described in the Statement of Additional Information. Each Fund
may invest in securities purchased on a when-issued or delayed-
delivery basis. Although the payment terms of these securities
are established at the time the Fund enters into the commitment,
the securities may be delivered and paid for a month or more after
the date of purchase, when their value may have changed. A Fund
will make such commitments only with the intention of actually
acquiring the securities, but may sell the securities before
settlement date if it is deemed advisable for investment reasons.
PORTFOLIO TURNOVER. Although the Funds do not purchase securities
with a view to rapid turnover, there are no limitations on the
length of time portfolio securities must be held, and the
portfolio turnover rate may vary significantly from year to year.
Under normal circumstances, Special Venture Fund expects to
experience moderate portfolio turnover with an investment time
horizon of three to five years, but its portfolio turnover is not
expected to exceed 100%. At times, Special Fund and Capital
Opportunities Fund may invest for short-term capital appreciation.
Flexibility of investment and emphasis on capital appreciation may
involve greater portfolio turnover than that of mutual funds that
have the objectives of income or maintenance of a balanced
investment position. A high rate of portfolio turnover may result
in increased transaction expenses and the realization of capital
gains and losses. (See Financial Highlights and Distributions and
Income Taxes.) Growth Stock Fund, Special Fund, Special Venture
Fund, and Capital Opportunities Fund are not intended to be
income-producing investments, although they may produce varying
amounts of income.
DERIVATIVES. Consistent with its objective, each Fund may invest
in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange-traded
options, futures contracts, futures options, securities
collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each case,
the value of the instrument or security is "derived" from the
performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency. No Fund expects
to invest more than 5% of its net assets in any type of Derivative
except for options, futures contracts, and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in currency exchange rates, security prices, interest
rates and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than exchange-traded
Derivatives. For additional information on Derivatives, please
refer to the Statement of Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuation, each Fund may: (1)
purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes or other benchmarks. A Fund may write a call
or put option only if the option is covered. As the writer of a
covered call option, a Fund foregoes, during the option's life,
the opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when a Fund seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
SHORT SALES AGAINST THE BOX. Each Fund may sell short securities
the Fund owns or has the right to acquire without further
consideration, a technique called selling short "against the box."
Short sales against the box may protect the Fund against the risk
of losses in the value of its portfolio securities because any
unrealized losses with respect to such securities should be wholly
or partly offset by a corresponding gain in the short position.
However, any potential gains in such securities should be wholly
or partially offset by a corresponding loss in the short position.
Short sales against the box may be used to lock in a profit on a
security when, for tax reasons or otherwise, the Adviser does not
want to sell the security. For a more complete explanation,
please refer to the Statement of Additional Information.
RESTRICTIONS ON THE FUNDS' INVESTMENTS
No Fund will invest more than 5% of its assets in the securities
of any one issuer. This restriction applies only to 75% of a
Fund's portfolio, but does not apply to securities of the U.S.
Government or repurchase agreements for such securities, and would
not prevent a Fund from investing all of its assets in shares of
another investment company having the identical investment
objective.
No Fund will acquire more than 10% of the outstanding voting
securities of any one issuer. Each Fund may, however, invest all
of its assets in shares of another investment company having the
identical investment objective.
No Fund may make loans except that it may (1) purchase money
market instruments and enter into repurchase agreements; (2)
acquire publicly-distributed or privately-placed debt
securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending program
with other Stein Roe Funds. No Fund may borrow money, except
for non-leveraging, temporary, or emergency purposes or in
connection with participation in the interfund lending program.
Neither a Fund's aggregate borrowings (including reverse
repurchase agreements) nor a Fund's aggregate loans at any one
time may exceed 33 1/3% of the value of its total assets.
The Funds may invest in repurchase agreements,/1/ provided that no
Fund will invest more than 15% of its net assets in repurchase
agreements maturing in more than seven days, and any other
illiquid securities.
- ----------------
/1/ A repurchase agreement involves a sale of securities to a Fund
in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
- ----------------
The policies summarized in the first three paragraphs under this
section (except for the first and second paragraphs as they relate
to Special Fund) and the policy with respect to concentration of
investments in any one industry described under Risks and Investment
Considerations are fundamental policies and, as such, can be changed
only with the approval of a "majority of the outstanding voting
securities" of a Fund as defined in the Investment Company Act of
1940. The Funds' investment objectives are non-fundamental and,
as such, may be changed by the Board of Trustees without shareholder
approval. Any such change may result in a Fund having an investment
objective different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of the
investment restrictions are set forth in the Statement of Additional
Information.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Growth & Income Fund is
designed for long-term investors who desire to participate in the
stock market with moderate investment risk while seeking to limit
market volatility. Balanced Fund is designed for long-term
investors who can accept the fluctuations in portfolio value and
other risks associated with seeking long-term capital appreciation
through investments in securities. Growth Stock Fund and Special
Fund are designed for long-term investors who desire to
participate in the stock market with more investment risk and
volatility than the stock market in general, but with less
investment risk and volatility than aggressive capital
appreciation funds. Special Venture Fund is designed for long-
term investors who want greater return potential than is available
from the stock market in general, and who are willing to tolerate
the greater investment risk and market volatility associated with
investments in small and medium-sized companies. Capital
Opportunities Fund is an aggressive growth fund and is designed
for long-term investors who can accept the fluctuations in
portfolio value and other risks associated with seeking long-term
capital appreciation through investments in common stocks. Of
course, there can be no guarantee that a Fund will achieve its
objective.
Securities of small and medium-sized companies may be subject to
greater price volatility than securities of larger companies and
tend to have a lower degree of market liquidity. They also may be
more sensitive to changes in economic and business conditions, and
may react differently than securities of larger companies. In
addition, such companies are less well known to the investing
public and may not be as widely followed by the investment
community.
Debt securities rated in the fourth highest grade may have some
speculative characteristics, and changes in economic conditions or
other circumstances may lead to a weakened capacity of the issuers
of such securities to make principal and interest payments.
Securities rated below investment grade may possess speculative
characteristics, and changes in economic conditions are more
likely to affect the issuer's capacity to pay interest or repay
principal.
Although Growth & Income Fund, Balanced Fund, Special Fund,
Special Venture Fund, and Capital Opportunities Fund do not
attempt to reduce or limit risk through wide industry
diversification of investment, they usually allocate their
investments among a number of different industries rather than
concentrating in a particular industry or group of industries.
Growth Stock Fund seeks to reduce risk by investing in a
diversified portfolio, but this does not eliminate all risk. No
Fund, however, will invest more than 25% of the total value of its
assets (at the time of investment) in the securities of companies
in any one industry. (See How the Funds Invest.)
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers; less market liquidity; more market
volatility; less developed and regulated markets; and greater
political instability. In addition, various restrictions by
foreign governments on investments by non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION. Rather than invest in securities
directly, each Fund may in the future seek to achieve its
investment objective by pooling its assets with assets of other
mutual funds managed by the Adviser for investment in another
investment company having the same investment objective and
substantially the same investment policies and restrictions as the
Fund. The purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected that
any such investment company would be managed by the Adviser in
substantially the same manner as the Fund. Shareholders of a Fund
will be given at least 30 days' prior notice of any such
investment, although they will not be entitled to vote on the
action. Such investment would be made only if the Trustees
determine it to be in the best interests of the Fund and its
shareholders.
HOW TO PURCHASE SHARES
You may purchase shares of any of the Funds by check, by wire, by
electronic transfer, or by exchange from your account with another
Stein Roe Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
("UGMA") accounts is $1,000; the minimum for accounts established
under an automatic investment plan (i.e., Regular Investments,
Dividend Purchase Option, or Automatic Exchange Plan) is $1,000
for regular accounts and $500 for UGMA accounts; and the minimum
per account for Stein Roe IRAs is $500. The initial purchase
minimum is waived for shareholders who participate in the Stein
Roe Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs and for clients of the Adviser.
Subsequent purchases must be at least $100, or at least $50 if you
purchase by electronic transfer. If you wish to purchase shares
to be held by a tax-sheltered retirement plan sponsored by the
Adviser, you must obtain special forms for those plans. (See
Shareholder Services.)
BY CHECK. To make an initial purchase of shares of a Fund by
check, please complete and sign the Application and mail it,
together with a check made payable to Stein Roe Mutual Funds, to
SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts 02205.
Participants in the Stein Roe Counselor [SERVICE MARK] Program
should send orders to SteinRoe Services Inc. at P.O. Box 803938,
Chicago, Illinois 60680.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $100, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside the United States.
Should an order to purchase shares of a Fund be cancelled because
your check does not clear, you will be responsible for any
resulting loss incurred by that Fund.
BY WIRE. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to the Funds at the First National Bank of Boston.
Your bank may charge you a fee for sending the wire. If you are
opening a new account by wire transfer, you must first telephone
the Trust to request an account number and furnish your social
security or other tax identification number. Neither the Funds
nor the Trust will be responsible for the consequences of delays,
including delays in the banking or Federal Reserve wire systems.
Your bank must include the full name(s) in which your account is
registered and your Fund account number, and should address its
wire as follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. ___; Stein Roe _____ Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Fund Numbers:
11--Growth & Income Fund
31--Balanced Fund
32--Growth Stock Fund
34--Special Fund
16--Special Venture Fund
33--Capital Opportunities Fund
Participants in the Stein Roe Counselor [SERVICE MARK] program
should contact their Stein Roe Counselor {SERVICE MARK] Account
Executive for instructions.
BY ELECTRONIC TRANSFER. You also may make subsequent investments
by an electronic transfer of funds from your bank checking
account. Electronic transfer allows you to make purchases at your
request ("Special Investments") by calling 800-338-2550 or at pre-
scheduled intervals ("Regular Investments"). (See Shareholder
Services.) Electronic transfer purchases are subject to a $50
minimum and a $100,000 maximum. You may not open a new account
through electronic transfer. Should an order to purchase shares
of a Fund be cancelled because your electronic transfer does not
clear, you will be responsible for any resulting loss incurred by
that Fund.
BY EXCHANGE. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information on the Exchange
Privilege under How to Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of a Fund's
shares is made at that Fund's net asset value (see Net Asset
Value) next determined after receipt of payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment
instruction eceived by telephone on a business day before 3:00 p.m.,
Central time, is effective on the next business day.
CONDITIONS OF PURCHASE. Each purchase order for a Fund must be
accepted by an authorized officer of the Trust in Chicago and is
not binding until accepted and entered on the books of that Fund.
Once your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of a
Fund's shareholders. The Trust also reserves the right to waive
or lower its investment minimums for any reason. The Trust does
not issue certificates for shares.
PURCHASES THROUGH THIRD PARTIES. You may purchase (or redeem)
shares through investment dealers, banks, or other financial
institutions. These institutions may charge for their services or
place limitations on the extent to which you may use the services
offered by the Trust. There are no charges or limitations imposed
by the Trust, other than those described in this prospectus, if
shares are purchased (or redeemed) directly from the Trust.
Some financial institutions that maintain nominee accounts with
the Funds for their clients for whom they hold Fund shares charge
an annual fee of up to 0.25% of the average net assets held in
such accounts for accounting, servicing, and distribution services
they provide with respect to the underlying Fund shares. The
Adviser pays these annual fees as well as all sales and promotional
expenses.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST. You may redeem all or a portion of your
shares of a Fund by submitting a written request in "good order"
to SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [SERVICE MARK]
Program should send redemption requests to SteinRoe Services Inc.
at P.O. Box 803938, Chicago, Illinois 60680. A redemption request
will be considered to have been received in good order if the
following conditions are satisfied:
(1) The request must be in writing, and must indicate the number
of shares or dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The request must be accompanied by any certificates for the
shares, either properly endorsed for transfer, or accompanied by a
stock assignment properly endorsed exactly as the shares are
registered;
(4) The signatures on either the written redemption request or
the certificates (or the accompanying stock power) must be
guaranteed (a signature guarantee is not a notarization, but is a
widely accepted way to protect you and the Funds by verifying your
signature);
(5) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this prospectus
(or a form of resolution acceptable to the Trust); and
(6) The request must include other supporting legal documents as
required from organizations, executors, administrators, trustees,
or others acting on accounts not registered in their names.
BY EXCHANGE. You may redeem all or any portion of your Fund
shares and use the proceeds to purchase shares of any other Stein
Roe Fund offered for sale in your state if your signed, properly
completed Application is on file. AN EXCHANGE TRANSACTION IS A
SALE AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND
MAY RESULT IN CAPITAL GAIN OR LOSS. Before exercising the
Exchange Privilege, you should obtain the prospectus for the Stein
Roe Fund in which you wish to invest and read it carefully. The
registration of the account to which you are making an exchange
must be exactly the same as that of the Fund account from which
the exchange is made and the amount you exchange must meet any
applicable minimum investment of the Stein Roe Fund being
purchased. An exchange may be made by following the redemption
procedure described above under By Written Request and indicating
the Stein Roe Fund to be purchased--a signature guarantee normally
is not required. (See also the discussion below of the Telephone
Exchange Privilege and Automatic Exchanges.)
SPECIAL REDEMPTION PRIVILEGES. The Telephone Exchange Privilege
and the Telephone Redemption by Check Privilege will be
established automatically for you when you open your account
unless you decline these Privileges on your Application. Other
Privileges must be specifically elected. If you do not want the
Telephone Exchange and Redemption Privileges, check the box(es)
under the section "Telephone Redemption Options"
when completing your Application. In addition, a signature
guarantee may be required to establish a Privilege after you open
your account. If you establish both the Telephone Redemption by
Wire Privilege and the Electronic Transfer Privilege, the bank
account that you designate for both Privileges must be the same.
You may not use any of the Special Redemption Privileges if you
hold certificates for any of your Fund shares. The Telephone
Redemption by Check Privilege, Telephone Redemption by Wire
Privilege, and Special Electronic Transfer Redemptions are not
available to redeem shares held by a tax-sheltered retirement plan
sponsored by the Adviser. (See also General Redemption Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND THE FUNDS MAY REFUSE REQUESTS
FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-
TRIP BEING THE EXCHANGE OUT OF A FUND INTO ANOTHER STEIN ROE FUND,
AND THEN BACK TO THAT FUND). In addition, the Trust's general
redemption policies apply to redemptions of shares by Telephone
Exchange. (See General Redemption Policies.)
The Trust reserves the right to suspend or terminate, at any time
and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Funds.
THEREFORE, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR
TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS
"MARKET-TIMERS." Moreover, the Trust reserves the right to
suspend, limit, modify, or terminate, at any time and without
prior notice, the Telephone Exchange Privilege in its entirety.
Because such a step would be taken only if the Board of Trustees
believes it would be in the best interests of the Funds, the Trust
expects that it would provide shareholders with prior written
notice of any such action unless the resulting delay in the
suspension, limitation, modification, or termination of the
Telephone Exchange Privilege would adversely affect the Funds. IF
THE TRUST WERE TO SUSPEND, LIMIT, MODIFY, OR TERMINATE THE
TELEPHONE EXCHANGE PRIVILEGE, A SHAREHOLDER EXPECTING TO MAKE A
TELEPHONE EXCHANGE MIGHT FIND THAT AN EXCHANGE COULD NOT BE
PROCESSED OR THAT THERE MIGHT BE A DELAY IN THE IMPLEMENTATION OF
THE EXCHANGE. (See How to Redeem Shares--By Exchange.) During
periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address. The
Telephone Redemption by Check Privilege is not available to redeem
shares held by a tax-sheltered retirement plan sponsored by the
Adviser.
Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem shares from your account ($1,000 minimum;
$100,000 maximum) by calling 800-338-2550. The proceeds will be
transmitted by wire to your account at a commercial bank
previously designated by you that is a member of the Federal
Reserve System. The fee for wiring proceeds (currently $3.50 per
transaction) will be deducted from the amount wired.
Electronic Transfer Privilege. You may redeem shares by calling
800-338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a checking account previously
designated by you at a bank that is a member of the Automated
Clearing House. You may also request electronic transfers at
scheduled intervals ("Automatic Redemptions"--see Shareholder
Services). Electronic transfers are subject to a $50 minimum and
a $100,000 maximum. A Special Redemption request received by
telephone after 3:00 p.m., Central time, is deemed received on the
next business day.
GENERAL REDEMPTION POLICIES. You may not cancel or revoke your
redemption order once instructions have been received and
accepted. The Trust cannot accept a redemption request that
specifies a particular date or price for redemption or any special
conditions. Please telephone the Trust if you have any questions
about requirements for a redemption before submitting your
request. If you wish to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser, special procedures of
those plans apply to such redemptions. (See Shareholder Services-
- -Tax-Sheltered Retirement Plans.) The Trust reserves the right to
require a properly completed Application before making payment for
shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon that Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Trust normally intends to pay proceeds of a Telephone Redemption
paid by wire on the next business day. If you attempt to redeem
shares within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
Generally, you may not use any Special Redemption Privilege to
redeem shares purchased by check (other than certified or cashiers'
checks) or electronic transfer until 15 days after their date of
purchase.
The Trust reserves the right to suspend, limit, modify, or
terminate, at any time without prior notice, any Privilege or its
use in any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably believe
that such instructions are genuine. The Funds employ procedures
reasonably designed to confirm that instructions communicated by
telephone under any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege are genuine. Use of any
Special Redemption Privilege or the Special Electronic Transfer
Redemption Privilege authorizes the Funds and their transfer agent
to tape-record all instructions to redeem. In addition, callers
are asked to identify the account number and registration, and may
be required to provide other forms of identification. Written
confirmations of transactions are mailed promptly to the
registered address; a legend on the confirmation requests that the
shareholder review the transactions and inform the Fund
immediately if there is a problem. If a Fund does not follow
reasonable procedures for protecting shareholders against loss on
telephone transactions, it may be liable for any losses due to
unauthorized or fraudulent instructions.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and would be allowed 30 days
to increase the account before the redemption is processed.
Shares in any account you maintain with a Fund or any of the other
Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers for the purchase of shares, or any Stein Roe
Fund liability under the Internal Revenue Code provisions on
backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS. You will receive a confirmation
statement reflecting each of your purchases and redemptions of
shares of a Fund, as well as periodic statements detailing
distributions made by that Fund. Shares purchased by reinvestment
of dividends, by cross-reinvestment of dividends from another
Fund, or through an automatic investment plan will be confirmed to
you quarterly. In addition, the Trust will send you semiannual
and annual reports showing Fund portfolio holdings and will
provide you annually with tax information.
FUNDS-ON-CALL [REGISTERED MARK] AUTOMATED TELEPHONE SERVICE. To
access the Stein Roe Funds-on-Call [registered mark] automated
telephone service, just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call
[registered mark] provides yields, prices, latest dividends,
account balances, last transaction, and other information 24 hours
a day, seven days a week. You also may use Funds-on-Call [registered
mark] to make Special Investments and Redemptions, Telephone Exchanges,
and Telephone Redemptions by Check. These transactions are subject
to the terms and conditions of the individual privileges. (See
How to Purchase Shares and How to Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM. The Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs are professional investment advisory
services available to shareholders. These programs are designed
to provide investment guidance in helping investors to select a
portfolio of Stein Roe Funds. The Stein Roe Counselor Preferred
[SERVICE MARK] program, which automatically adjusts client
portfolios among the Stein Roe Funds, has a fee of up to 1% of
assets.
TAX-SHELTERED RETIREMENT PLANS. Booklets describing the following
programs and special forms necessary for establishing them are
available on request. You may use all of the Stein Roe Funds,
except those investing primarily in tax-exempt securities, in
these plans. Please read the prospectus for each fund in which
you plan to invest before making your investment.
Individual Retirement Accounts ("IRAs") for employed persons and
their non-employed spouses.
Prototype Money Purchase Pension and Profit Sharing Plans for
self-employed individuals, partnerships, and corporations.
Simplified Employee Pension Plans permitting employers to provide
retirement benefits to their employees by utilizing IRAs while
minimizing administration and reporting requirements.
SPECIAL SERVICES. The following special services are available to
shareholders. Please call 800-338-2550 or write the Trust for
additional information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25. The account into which distributions are to be
invested may be opened with an initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank checking account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your Application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--to redeem shares from your
account by phone and have the proceeds transmitted by wire to your
checking account ($1,000 minimum; $100,000 maximum).
Special Redemption Option (electronic transfer)--to redeem shares
at any time and have the proceeds deposited directly to your bank
checking account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--to purchase Fund shares
at regular intervals directly from your bank checking account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)--to purchase Fund shares
by telephone and pay for them by electronic transfer of funds from
your checking account ($50 minimum; $100,000 maximum).
Automatic Exchange Plan--to automatically redeem a fixed dollar
amount from your Fund account and invest it in another Stein Roe
Fund account on a regular basis ($50 minimum; $100,000 maximum).
Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank checking account ($50 minimum; $100,000 maximum).
Systematic Withdrawals--to have a fixed dollar amount, declining
balance, or fixed percentage of your account redeemed and sent at
regular intervals by check to you or another payee.
NET ASSET VALUE
The purchase and redemption price of each Fund's shares is its net
asset value per share. The net asset value of a share of each
Fund is determined as of the close of trading on the New York
Stock Exchange ("NYSE") (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's assets
and liabilities by the number of shares outstanding. Net asset
value will not be determined on days when the NYSE is closed
unless, in the judgment of the Board of Trustees, the net asset
value of a Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
Long-term straight-debt obligations are valued at a fair value
using a procedure determined in good faith by the Board of
Trustees. Pricing services approved by the Board provide
valuations (some of which may be "readily available market
quotations"). These valuations are reviewed by the Adviser. If
the Adviser believes that a valuation received from the service
does not represent a fair value, it values the obligation using a
method that the Board believes represents fair value. The Board
may approve the use of other pricing services and any pricing
service used may employ electronic data processing techniques,
including a so-called "matrix" system, to determine valuations.
Securities convertible into stocks are valued at the latest
valuation from a principal market maker. Other assets and
securities are valued by a method that the Board believes
represents fair value.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS. Income dividends for Growth & Income Fund and
Balanced Fund are normally declared and paid quarterly; and income
dividends for Growth Stock Fund, Special Fund, Special Venture
Fund, and Capital Opportunities Fund are normally declared and
paid annually. Each Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the twelve-month period ended
October 31 in that year. Therefore, an additional dividend may be
declared near year end. The Funds intend to distribute any
undistributed net investment income and net realized capital gains
in the following year.
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank checking account; (3) applied
to purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment into
the same Fund account normally occurs one business day after the
record date. Investment of distributions into another Stein Roe
Fund account occurs on the payable date. If you choose to receive
your distributions in cash, your distribution check normally will
be mailed approximately 15 days after the record date. The Trust
reserves the right to reinvest the proceeds and future
distributions in additional Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
INCOME TAXES. Your distributions will be taxable to you, under
income tax law, whether received in cash or reinvested in
additional shares. For federal income tax purposes, any
distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gain.
Distributions of net long-term capital gain will be taxable to you
as long-term capital gain regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, each Fund is treated as a
separate taxable entity distinct from the other series of the
Trust.
This discussion of taxation is not intended to be a full
discussion of income tax laws and their effect on shareholders.
You may wish to consult your own tax advisor. The foregoing
information applies to U.S. shareholders. Foreign shareholders
should consult their tax advisors as to the tax consequences of
ownership of Fund shares.
BACKUP WITHHOLDING. The Trust may be required to withhold federal
income tax ("backup withholding") from certain payments to you,
generally redemption proceeds. Backup withholding may be required
if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.
These certifications are contained in the Application that you
should complete and return when you open an account. The Funds
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for a Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a credit
on your federal income tax return.
INVESTMENT RETURN
The total return from an investment in a Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of a Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
MANAGEMENT OF THE FUNDS
TRUSTEES AND ADVISER. The Board of Trustees of the Trust has
overall management responsibility for the Trust and the Funds.
See the Statement of Additional Information for the names of and
additional information about the trustees and officers. The
Funds' Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
Funds, subject to the direction of the Board of Trustees. The
Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a wholly owned subsidiary
of Liberty Financial Companies, Inc. ("Liberty Financial"), which
in turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
PORTFOLIO MANAGERS. Daniel K. Cantor has been portfolio manager
of Growth & Income Fund since 1995. He is a senior vice president
of the Adviser, which he joined in 1985. A chartered financial
analyst, he received a B.A. degree from the University of
Rochester in 1981 and an M.B.A. from the Wharton School of the
University of Pennsylvania in 1985. As of December 31, 1995, Mr.
Cantor was responsible for managing $152 million in mutual fund
assets. Jeffrey C. Kinzel has been associate manager of this Fund
since April, 1996. Mr. Kinzel received a B.A. from Northwestern
University (1979), a J.D. from the University of Michigan Law
School (1983), and an M.B.A. from the Wharton School of the
University of Pennsylvania (1991). Mr. Kinzel is a vice president
and intermediate research analyst with the Adviser. Before
joining the Adviser in 1991 as an equity research analyst, Mr.
Kinzel was employed by Butler and Binion; Miller, Canfield,
Paddock and Stone; and 1838 Investment Advisers.
Harvey B. Hirschhorn has been portfolio manager of Balanced Fund
since April, 1996. He is executive vice president and director of
research services of the Adviser, which he joined in 1973. He
received an A.B. degree from Rutgers College in 1971 and an M.B.A.
from the University of Chicago in 1973, and is a chartered
financial analyst. Mr. Hirschhorn was responsible for managing
$512 million in mutual fund assets at December 31, 1995. William
Garrison and Sandra Knight are associate portfolio managers of
Balanced Fund. Mr. Garrison joined the Adviser in 1989. He
received his A.B. from Princeton University (1988) and an M.B.A.
from the University of Chicago (1995). Ms. Knight is a vice
president and senior quantitative research analyst with the
Adviser, which she joined in 1991. She earned a B.S. degree
from Lawrence Technological University (1984) and an M.B.A.
from Loyola University of Chicago (1991).
Growth Stock Fund is managed by Erik P. Gustafson, who has managed
the Fund since 1994. Mr. Gustafson is a senior vice president and
senior portfolio manager with the Adviser, which he joined in
1992. From 1989 to 1992 he was an attorney with Fowler, White,
Burnett, Hurley, Banick & Strickroot. He holds a B.A. from the
University of Virginia (1985) and M.B.A. and J.D. degrees (1989)
from Florida State University. Mr. Gustafson was responsible for
managing $554 million in mutual fund assets at December 31, 1995.
David P. Brady has been associate portfolio manager of Growth
Stock Fund since April, 1996. A vice president of the Adviser and
the Trust, Mr. Brady joined the Adviser in 1993, and was an equity
investment analyst with State Farm Mutual Automobile Insurance
Company from 1986 to 1993.
Gloria J. Santella and Eric S. Maddix are co-portfolio managers of
Capital Opportunities Fund. Ms. Santella has been portfolio
manager since October, 1994, and had previously been co-portfolio
manager of the Fund since March, 1991. Ms. Santella is a vice-
president of the Trust and a senior vice president of the Adviser,
having been associated with the Adviser since 1979. She received
her B.B.A. from Loyola University in 1979 and M.B.A. from the
University of Chicago in 1983. As of December 31, 1995, she
managed $332 million in mutual fund assets. Mr. Maddix became co-
portfolio manager of the Fund in 1996, and was previously its
associate portfolio manager. Mr. Maddix is a vice president of
the Adviser, which he joined in 1987. He received his B.B.A.
degree from Iowa State University in 1986 and his M.B.A. from the
University of Chicago in 1992.
E. Bruce Dunn and Richard B. Peterson have been co-portfolio
managers of Special Fund since 1991 and of Special Venture Fund
since its inception in 1994. Each is a vice-president of the
Trust and a senior vice president of the Adviser. Mr. Dunn has
been associated with the Adviser since 1964. He received his A.B.
degree from Yale University in 1956 and his M.B.A. from Harvard
University in 1958 and is a chartered investment counselor. Mr.
Peterson, who began his investment career at Stein Roe & Farnham
in 1965 after graduating with a B.A. from Carleton College in 1962
and the Woodrow Wilson School at Princeton University in 1964 with
a Masters in Public Administration, rejoined the Adviser in 1991
after 15 years of equity research and portfolio management
experience with State Farm Investment Management Corporation. As
of December 31, 1995, Messrs. Dunn and Peterson were responsible
for co-managing $1.3 billion in mutual fund assets.
FEES AND EXPENSES.
In return for its services, the Adviser receives monthly fees from
each Fund. The investment advisory agreement relating to the
Special Venture Fund was replaced on July 1, 1996 with an
administrative agreement and a management agreement; the
investment advisory agreements relating to the other Funds were
replaced on September 1, 1995. Under the terminated advisory
agreements, the annual fees, based on average net assets, were:
for Special Venture Fund, .90%; for Growth & Income Fund, .6% of
the first $100 million, .55% of the next $100 million, and .5%
thereafter; for Balanced Fund, .625% of the first $100 million and
0.5 of 1% above that amount; for Growth Stock Fund, .75% of the
first $250 million, .70% of the next $250 million, and .60%
thereafter; and for Special Fund and Capital Opportunities Fund,
.75%. The current fee schedules are as follows:
Management Administrative Total
Fund Fee Fee Fees
- --------------------- -------------- -------------- ---------------
Growth & Income Fund, .60% up to $500, .15% up to $500, .75% up to $500,
Growth Stock Fund .55% next $500, .125% next $500, .675% next $500,
. .50% thereafter .10% thereafter .60% thereafter
Balanced Fund .55% up to $500, .15% up to $500, .70% up to $500
.50% next $500, .125% next $500, .625% next $500,
.45% thereafter .10% thereafter .55% thereafter
Special Fund; .75% up to $500, .15% up to $500, .90% up to $500,
Capital Opportunities .70% next $500, .125% next $500, .825% next $500,
Fund .65% next $500, .10% next $500, .75% next $500,
Special Venture Fund .75% .15% .90%
Although the rates of fees for Special Venture Fund, Special Fund, and
Capital Opportunities Fund are higher than those paid by most mutual
funds, they are comparable to or lower than the rates of fees paid
by many mutual funds with similar investment objectives. For the year
ended September 30, 1995, the fees for Growth & Income Fund, Growth
Stock Fund, Balanced Fund, Special Fund, and Capital Opportunities
Fund amounted to .60%, .74%, .57%, .76%, and .75% of average net
assets, respectively; and the fee for Special Venture Fund, after
the Fund's expense limitation described under Fee Table, amounted
to .48% of average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Funds,
including computation of each Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS. The Adviser places the orders for the
purchase and sale of portfolio securities and options and futures
transactions for each Fund. In doing so, the Adviser seeks to
obtain the best combination of price and execution, which involves
a number of judgmental factors.
TRANSFER AGENT. SteinRoe Services Inc., One South Wacker Drive,
Chicago, Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
DISTRIBUTOR. The shares of each Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to the Funds or to their shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to
SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205, except for participants in the Stein Roe Counselor [SERVICE
MARK] Program, who should send orders to SteinRoe Services Inc. at
P.O. Box 803938,Chicago, Illinois 60680. All distribution and
promotional expenses are paid by the Adviser, including payments
to the Distributor for sales of Fund shares.
CUSTODIAN. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Funds. Foreign securities are maintained in the custody of
foreign banks and trust companies that are members of the Bank's
Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to circumstances
in which the disclaimer was inoperative and the Trust was unable to
meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other Fund was unable to meet its obligations.
<PAGE>
CERTIFICATE OF AUTHORIZATION (FOR USE BY CORPORATIONS AND
ASSOCIATIONS ONLY)
A corporation or association must complete this Certificate and
submit it with the Fund Application, each written redemption,
transfer or exchange request, and each request to terminate or
change any of the Privileges or special service elections.
If the entity submitting the Certificate is an association, the
word "association" shall be deemed to appear each place the word
"corporation" appears. If the officer signing this Certificate is
named as an authorized person, another officer must countersign
the Certificate. If there is no other officer, the person signing
the Certificate must have his signature guaranteed. If you are
not sure whether you are required to complete this Certificate,
call the office of the Stein Roe Funds, 800-338-2550 toll-free.
The undersigned hereby certifies that he is the duly elected
Secretary of _________________________________________
(Name of Corporation/Association)
(the "Corporation") and that the following individual(s):
Authorized Persons
- -------------------------- ----------------------------
Name Title
- -------------------------- ----------------------------
Name Title
- -------------------------- ----------------------------
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any manner,
or to redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.
Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and Bylaws provide that he is the only
person authorized to so act.
Unless expressly declined on the Application (or other form
acceptable to the Funds), the undersigned further certifies that
the Corporation has authorized by resolution or otherwise the
establishment of the Telephone Exchange and Telephone Redemption
by Check Privileges for the Corporation's account with any Fund
offering any such Privilege. If elected on the Application (or
other form acceptable to the Funds), the undersigned also
certifies that the Corporation has similarly authorized
establishment of the Electronic Transfer, Telephone Redemption by
Wire, and Check-Writing Privileges for the Corporation's account
with any Fund offering said Privileges. The undersigned has
further authorized each Fund and its transfer agent to honor any
written, telephonic, or telegraphic instructions furnished
pursuant to any such Privilege by any person believed by the Fund
or its transfer agent or their agents, officers, directors,
trustees, or employees to be authorized to act on behalf of the
Corporation and agrees that neither the Fund nor its transfer
agent, their agents, officers, directors, trustees, or employees
will be liable for any loss, liability, cost, or expense for
acting upon any such instructions.
These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.
IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of _________________, 19___.
<PAGE>
-------------------------
Secretary
-------------------------
Signature Guarantee*
*Only required if the person signing
the Certificate is the only person
named as "Authorized Person."
CORPORATE
SEAL
HERE
<PAGE> 38
[STEIN ROE MUTUAL FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Balanced Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
800-338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
<PAGE>
STEIN ROE INVESTMENT TRUST
STEIN ROE INTERNATIONAL FUND
THE FEBRUARY 1, 1996 DATE OF THIS PROSPECTUS IS NULL AND VOID.
THE NEW DATE OF THIS PROSPECTUS IS JULY 1, 1996
SUPPLEMENT
NEW AGREEMENTS. On July 1, 1996, the investment advisory
agreement with Stein Roe & Farnham Incorporated (the "Adviser")
relating to the Fund was replaced with an administrative agreement
and a management agreement. The new fee schedule (which does not
result in a fee increase) calls for a management fee at an annual
rate of .85% of average daily net assets and an administrative fee
of .15%, for a total annual fee of 1% of average net assets.
INTERFUND LENDING PROGRAM. On June 18, 1996, the Fund's
shareholders approved changes in the Fund's investment
restrictions regarding borrowing and lending to permit the Fund to
participate in an interfund lending program with other mutual
funds managed by the Adviser. The third paragraph under
Restrictions on the Funds' Investments (page 11 of the Prospectus)
is revised to read as follows:
"The Fund may not make loans except that it may (1) purchase
money market instruments and enter into repurchase agreements;
(2) acquire publicly-distributed or privately-placed debt
securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending
program with other Stein Roe Funds. The Fund may not borrow
money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the Fund's aggregate borrowings
(including reverse repurchase agreements) nor the Fund's
aggregate loans at any one time may exceed 33 1/3% of the
value of its total assets."
FINANCIAL HIGHLIGHTS. The per share data (for a share
outstanding throughout the period) contained in the section
Financial Highlights (page 5 of the Prospectus) is updated by
adding the following unaudited financial information for the six
months ended March 31, 1996:
NET ASSET VALUE, BEGINNING OF PERIOD..............$10.25
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.............................0.01
Net realized and unrealized gains on
investments and foreign currency transactions.. 0.41
------
Total from investment operations............. 0.42
------
DISTRIBUTIONS
Net investment income............................(0.12)
Net realized capital gains...................... --
------
Total distributions.......... ................ (0.12)
------
NET ASSET VALUE, END OF PERIOD....................$10.55
------
------
Ratio of net expenses to average net asset........*1.55%
Ratio of net investment income to average net
assets ........................................*0.35%
Portfolio turnover rate..............................32%
Average commissions (per share)..................$0.0090
Total return ......................................4.19%
Net assets, end of period (000 omitted).........$113,890
_______________
*Annualized.
NEW ADDRESS FOR ORDERS. Effective July 5, 1996, orders for
purchases and redemptions of Fund shares should be mailed to
SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [SERVICE MARK]
Program should send orders to SteinRoe Services Inc. at P.O. Box
803938, Chicago, Illinois 60680.
The Statement of Additional Information dated July 1, 1996
and the most recent financial statements may be obtained without
charge by writing to the Secretary of the Trust at One South Wacker
Drive, Chicago, Illinois 60606, or by calling 800-338-2550.
NEW INSTRUCTIONS FOR PURCHASES BY WIRE TRANSFER. Effective
July 5, 1996, wire transfers for the purchase of Fund shares
should be addressed as follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. 12; Stein Roe International Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Participants in the Stein Roe Counselor [SERVICE MARK]
program should continue to use the instructions in the Prospectus
under How to Purchase Shares--By Wire for wire purchases.
__________________________
<PAGE>
INTERNATIONAL FUND
The Fund seeks long-term growth of capital by investing in a
diversified portfolio of foreign securities.
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and most recent financial
statements may be obtained without charge by writing to the
Secretary at the address shown on the back cover or by calling
800-338-2550.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 1, 1996.
<PAGE>
TABLE OF CONTENTS
Page
Summary..................................2
Fee Table ..............................4
Financial Highlights.....................5
The Fund ................................6
How the Fund Invests ....................6
Portfolio Investments and Strategies.....7
Restrictions on the Fund's Investments..11
Risks and Investment Considerations.....12
How to Purchase Shares .................14
By Check ...........................15
By Wire ............................15
By Electronic Transfer .............15
By Exchange ........................16
Purchase Price and Effective Date ..16
Conditions of Purchase .............16
Purchases Through Third Parties.....16
How to Redeem Shares ...................17
By Written Request .................17
By Exchange ........................17
Special Redemption Privileges ......18
General Redemption Policies ........19
Shareholder Services ...................21
Net Asset Value ........................23
Distributions and Income Taxes .........24
Investment Return ......................26
Management of the Fund .................26
Organization and Description of Shares..28
Certificate of Authorization............29
SUMMARY
The Stein Roe International Fund (the "Fund") is a series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. The Fund is a "no-load" fund. There are no
sales or redemption charges. (See The Fund and Organization and
Description of Shares.) This prospectus is not a solicitation in any
jurisdiction in which the Fund is not registered for sale.
INVESTMENT OBJECTIVE AND POLICIES. The Fund seeks long-term
growth of capital by investing primarily in a diversified
portfolio of foreign securities. The Fund invests primarily in
equity securities. Under normal market conditions, the Fund will
invest at least 65% of its total assets (taken at market value) in
foreign securities of at least three countries outside the United
States. The Fund diversifies its investments among several
countries and does not concentrate investments in any particular
industry.
There can be no guarantee that the Fund will achieve its
investment objective. Please see How the Fund Invests and
Portfolio Investments and Strategies for further information.
INVESTMENT RISKS. The Fund is intended for long-term investors
who can accept the risks entailed in investing in foreign
securities.
Since the Fund invests primarily in foreign securities, investors
should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities involves
certain considerations involving both risks and opportunities not
typically associated with investing in U.S. securities. Such
risks include fluctuations in exchange rates on foreign
currencies, less public information, less government supervision,
less liquidity, and greater price volatility.
Please see How the Fund Invests, Portfolio Investments and
Strategies, and Risks and Investment Considerations for further
information.
PURCHASES. The minimum initial investment for the Fund is $2,500
and additional investments must be at least $100 (only $50 for
purchases by electronic transfer). Shares may be purchased by
check, by bank wire, by electronic transfer, or by exchange from
another Stein Roe Fund. For more detailed information, see How to
Purchase Shares.
REDEMPTIONS. For information on redeeming Fund shares, including
the special redemption privileges, see How to Redeem Shares.
NET ASSET VALUE. The purchase and redemption price of the Fund's
shares is its net asset value per share. The net asset value is
determined as of the close of trading on the New York Stock
Exchange. (For more detailed information, see Net Asset Value.)
DISTRIBUTIONS. Dividends for the Fund are normally declared and
paid annually. Distributions will be reinvested into your Fund
account unless you elect to have them paid in cash, deposited by
electronic transfer into your bank checking account, or invested
in another Stein Roe Fund account. (See Distributions and Income
Taxes and Shareholder Services.)
ADVISER AND FEES. Stein Roe & Farnham Incorporated (the
"Adviser") provides management and investment advisory
services to the Fund. For a description of the Adviser and the
advisory fees paid by the Fund, see Management of the Fund.
If you have any additional questions about the Fund, please feel
free to discuss them with an account representative by calling
800-338-2550.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None*
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets)
Management Fees 1.00%
12b-1 Fees None
Other Expenses 0.65%
-----
Total Fund Operating Expenses 1.65%
-----
-----
- -------------
* There is a $3.50 charge for wiring redemption proceeds to your bank.
EXAMPLE. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; and (2) redemption at
the end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$17 $52 $90 $195
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based on
expenses incurred in the last fiscal year, except that it has been
adjusted to reflect changes in the Fund's transfer agency services
and fees. From time to time, the Adviser may voluntarily absorb
certain expenses of the Fund. The Adviser has agreed to
voluntarily waive its management fee and absorb the expenses of
the Fund to the extent that such fees and expenses on an
annualized basis exceed 1.65% of its annual average net assets
from May 1, 1995 through January 31, 1997, subject to earlier
termination by the Adviser on 30 days' notice. Any such
absorption will temporarily lower the Fund's overall expense ratio
and increase its overall return to investors. The Fund's expenses
were not limited during the period since they did not exceed the
limitation. (Also see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods and that all
income dividends and capital gain distributions are reinvested in
additional Fund shares.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing the Fund's expenses
and in providing a basis for comparison with other mutual funds,
it should not be used for comparison with other investments using
different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis for the period shown and has been audited by
Arthur Andersen LLP, independent public accountants. The
auditors' report was unqualified. The table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
Period Ended Year Ended
Sept. 30, Sept. 30,
1994 (a) 1995
------------ ---------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.61
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.12
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions 0.58 (0.26)
------ ------
Total from investment operations 0.61 (0.14)
------ ------
DISTRIBUTIONS
Net investment income -- (0.05)
Net realized capital gains -- (0.17)
------ ------
Total distributions -- (0.22)
------ ------
NET ASSET VALUE, END OF PERIOD $10.61 $10.25
------ ------
------ ------
Ratio of net expenses to average net assets *1.61% 1.59%
Ratio of net investment income to average
net assets *0.61% 1.41%
Portfolio turnover rate 48% 59%
Total return 6.10% (1.28%)
Net assets, end of period (000 omitted) $74,817 $83,020
- -----------
*Annualized.
(a) From commencement of operations on March 1, 1994.
THE FUND
The STEIN ROE INTERNATIONAL FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a portfolio
of securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the Stein Roe Investment Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages and
provides investment advisory services for several other no-load
mutual funds with different investment objectives, including
equity funds, taxable and tax-exempt bond funds, and money market
funds. To obtain prospectuses and other information on any of
those mutual funds, please call 800-338-2550.
HOW THE FUND INVESTS
The Fund invests as described below and may also employ investment
techniques described under Portfolio Investments and Strategies
in this prospectus.
The Fund's investment objective is to seek long-term growth of
capital by investing primarily in a diversified portfolio of
foreign securities. Current income is not a primary factor in the
selection of portfolio securities. The Fund invests primarily in
common stocks and other equity-type securities (such as preferred
stocks, securities convertible or exchangeable for common stocks,
and warrants or rights to purchase common stocks). The Fund may
invest in securities of smaller emerging companies as well as
securities of well-seasoned companies of any size. Smaller
companies, however, involve higher risks in that they typically
have limited product lines, markets, and financial or management
resources. In addition, the securities of smaller companies may
trade less frequently and have greater price fluctuation than
larger companies, particularly those operating in countries with
developing markets.
The Fund diversifies its investments among several countries and
does not concentrate investments in any particular industry. In
pursuing its objective, the Fund varies the geographic allocation
and types of securities in which it invests based on the Adviser's
continuing evaluation of economic, market, and political trends
throughout the world. While the Fund has not established limits
on geographic asset distribution, it ordinarily invests in the
securities markets of at least three countries outside the United
States, including but not limited to Western European countries
(such as Belgium, France, Germany, Ireland, Italy, The
Netherlands, the countries of Scandinavia, Spain, Switzerland, and
the United Kingdom); countries in the Pacific Basin (such as
Australia, Hong Kong, Japan, Malaysia, the Philippines, Singapore,
and Thailand); and countries in the Americas (such as Argentina,
Brazil, Chile, and Mexico).
Under normal market conditions, the Fund will invest at least 65%
of its total assets (taken at market value) in foreign securities.
If, however, investments in foreign securities appear to be
relatively unattractive in the judgment of the Adviser because of
current or anticipated adverse political or economic conditions,
the Fund may hold cash or invest any portion of its assets in
securities of the U.S. Government and equity and debt securities
of U.S. companies, as a temporary defensive strategy. To meet
liquidity needs, the Fund may also hold cash in domestic and
foreign currencies and invest in domestic and foreign money market
securities (including repurchase agreements and foreign money
market positions).
In the past the U.S. Government has from time to time imposed
restrictions, through taxation and other methods, on foreign
investments by U.S. investors such as the Fund. If such
restrictions should be reinstated, it might become necessary for
the Fund to invest all or substantially all of its assets in U.S.
securities. In such an event, the Fund would review its
investment objective and policies to determine whether changes are
appropriate.
The Fund may purchase foreign securities in the form of American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
or other securities representing underlying shares of foreign
issuers. The Fund may invest in sponsored or unsponsored ADRs.
(For a description of ADRs and EDRs, see the Statement of
Additional Information.)
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES. Consistent with its objective, the Fund may invest
in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange-traded
options, futures contracts, futures options, forward contracts,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate, or a
currency. The Fund does not expect to invest more than 5% of its
net assets in any type of Derivative except for options, futures
contracts, futures options, and forward contracts.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in currency exchange rates, security prices, interest
rates and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than exchange-traded
Derivatives. For additional information on Derivatives, please
refer to the Statement of Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund may: (1)
purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes, or other benchmarks. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund foregoes, during the option's
life, the opportunity to profit from increases in market value of
the security covering the call option above the sum of the premium
and the exercise price of the call. There can be no assurance
that a liquid market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
DEBT SECURITIES. In pursuing its investment objective, the Fund
may invest up to 35% of its total assets in debt securities.
Investments in debt securities are limited to those that are rated
within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized
statistical rating organization. Investments in unrated debt
securities are limited to those deemed to be of comparable quality
by the Adviser. Securities in the fourth highest grade may
possess speculative characteristics. If the rating of a security
held by the Fund is lost or reduced below investment grade, the
Fund is not required to dispose of the security--the Adviser will,
however, consider that fact in determining whether the Fund should
continue to hold the security. The risks inherent in debt securities
depend primarily on the term and quality of the obligations in the
Fund's portfolio, as well as on market conditions. A decline in the
prevailing levels of interest rates generally increases the value of
debt securities. Conversely, an increase in rates usually reduces the
value of debt securities.
SETTLEMENT TRANSACTIONS. When the Fund enters into a contract
for the purchase or sale of a foreign portfolio security, it
usually is required to settle the purchase transaction in the
relevant foreign currency or receive the proceeds of the sale in
that currency. In either event, the Fund is obliged to acquire or
dispose of an appropriate amount of foreign currency by selling or
buying an equivalent amount of U.S. dollars. At or near the time
of the purchase or sale of the foreign portfolio security, the
Fund may wish to lock in the U.S. dollar value of a transaction at
the exchange rate or rates then prevailing between the U.S. dollar
and the currency in which the security is denominated. Known as
"transaction hedging," this may be accomplished by purchasing or
selling such foreign securities on a "spot," or cash, basis.
Transaction hedging also may be accomplished on a forward basis,
whereby the Fund purchases or sells a specific amount of foreign
currency, at a price set at the time of the contract, for receipt
or delivery at either a specified date or at any time within a
specified time period. In so doing, the Fund will attempt to
insulate itself against possible losses and gains resulting from a
change in the relationship between the U.S. dollar and the foreign
currency during the period between the date the security is
purchased or sold and the date on which payment is made or
received. Similar transactions may be entered into by using other
currencies if the Fund seeks to move investments denominated in
one currency to investments denominated in another.
CURRENCY HEDGING. Most of the Fund's portfolio will be invested
in foreign securities. As a result, in addition to the risk of
change in the market value of portfolio securities, the value of
the portfolio in U.S. dollars is subject to fluctuations in the
exchange rate between the foreign currencies and the U.S. dollar.
When, in the opinion of the Adviser, it is desirable to limit or
reduce exposure in a foreign currency to moderate potential
changes in the U.S. dollar value of the portfolio, the Fund may
enter into a forward currency exchange contract to sell or buy
such foreign currency (or another foreign currency that acts as a
proxy for that currency)--through the contract, the U.S. dollar
value of certain underlying foreign portfolio securities can be
approximately matched by an equivalent U.S. dollar liability.
This technique is known as "currency hedging." By locking in a
rate of exchange, currency hedging is intended to moderate or
reduce the risk of change in the U.S. dollar value of the Fund's
portfolio only during the period of the forward contract. Forward
contracts usually are entered into with banks and broker-dealers;
are not exchange traded; and while they are usually less than one
year, may be renewed. A default on the contract would deprive the
Fund of unrealized profits or force the Fund to cover its
commitments for purchase or sale of currency, if any, at the
current market price.
Neither type of foreign currency transaction will eliminate
fluctuations in the prices of the Fund's portfolio securities or
prevent loss if the price of such securities should decline. In
addition, such forward currency exchange contracts will diminish
the benefit of the appreciation in the U.S. dollar value of that
foreign currency. (For further information on forward foreign currency
exchange transactions, see the Statement of Additional Information.)
PORTFOLIO TURNOVER. Although the Fund does not purchase
securities with a view to rapid turnover, there are no limitations
on the length of time portfolio securities must be held.
Accordingly, the portfolio turnover rate may vary significantly
from year to year, but is not expected to exceed 100% under normal
market conditions. Flexibility of investment and emphasis on
capital appreciation may involve greater portfolio turnover than
that of mutual funds that have the objectives of income or
maintenance of a balanced investment position. A high rate of
portfolio turnover may result in increased transaction expenses
and the realization of capital gains and losses. (See
Distributions and Income Taxes.) The Fund is not intended to be
an income-producing investment.
OTHER TECHNIQUES. The Fund may invest in securities purchased on
a when-issued or delayed-delivery basis. Although the payment
terms of these securities are established at the time the Fund
enters into the commitment, the securities may be delivered and
paid for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments only
with the intention of actually acquiring the securities, but may
sell the securities before settlement date if it is deemed
advisable for investment reasons. The Fund may utilize spot and
forward foreign exchange transactions to reduce the risk caused by
exchange rate fluctuations between one currency and another when
securities are purchased or sold on a when-issued basis. It may
also invest in synthetic money market instruments. The Fund may
invest in repurchase agreements, provided that it will not invest
more than 15% of its net assets in repurchase agreements maturing
in more than seven days and any other illiquid securities. (See
the Statement of Additional Information.)
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements, /1/ provided that
the Fund will not invest more than 15% of its net assets in
repurchase agreements maturing in more than seven days, and any
other illiquid securities.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
- -----------------
The policies summarized in the first three paragraphs of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment objective
is non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in the Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
Nothing in the investment restrictions outlined here shall be
deemed to prohibit the Fund from purchasing the securities of any
issuer pursuant to the exercise of subscription rights distributed
to the Fund by the issuer. No such purchase may be made if, as a
result, the Fund will no longer be a diversified investment
company as defined in the Investment Company Act of 1940 or if the
Fund will fail to meet the diversification requirements of the
Internal Revenue Code.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. THE FUND IS INTENDED
FOR LONG-TERM INVESTORS WHO CAN ACCEPT THE RISKS ENTAILED IN
INVESTING IN FOREIGN SECURITIES. Of course, there can be no
guarantee that the Fund will achieve its objective.
Although the Fund does not attempt to reduce or limit risk through
wide industry diversification of investment, the Fund usually
allocates its investments among a number of different industries
rather than concentrating in a particular industry or group of
industries. The Fund will not, however, invest more than 25% of
its total assets (at the time of investment) in the securities of
companies in any one industry.
FOREIGN INVESTING. The Fund provides long-term investors with an
opportunity to invest a portion of their assets in a diversified
portfolio of foreign securities. Non-U.S. investments may be
attractive because they increase diversification, as compared to a
portfolio comprised solely of U.S. investments. In addition, many
foreign economies have, from time to time, grown faster than the
U.S. economy, and the returns on investments in these countries
have exceeded those of similar U.S. investments--there can be no
assurance, however, that these conditions will continue.
International diversification allows the Fund and an investor to
achieve greater diversification and to take advantage of changes
in foreign economies and market conditions.
Investors should understand and consider carefully the greater
risks involved in foreign investing. Investing in foreign
securities--positions which are generally denominated in
foreign currencies--and utilization of forward foreign currency
exchange contracts involve certain considerations comprising both
risks and opportunities not typically associated with investing in
U.S. securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulations or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in the securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements. These risks are greater for emerging market
countries.
Although the Fund will try to invest in companies and governments
of countries having stable political environments, there is the
possibility of expropriation or confiscatory taxation, seizure or
nationalization of foreign bank deposits or other assets,
establishment of exchange controls, the adoption of foreign
government restrictions, and other adverse political, social or
diplomatic developments that could affect investment in these
nations.
The price of securities of small, rapidly growing companies is
expected to fluctuate more widely than the general market due to
the difficulty in assessing financial prospects of companies
developing new products or operating in countries with developing
markets.
The strategy for selecting investments will be based on various
criteria. A company proposed for investment should have a good
market position in a fast-growing segment of the economy, strong
management, preferably a leading position in its business,
prospects of superior financial returns, ability to self-finance,
and securities available for purchase at a reasonable market
valuation. Because of the foreign domicile of such companies,
however, information on some of the above factors may be
difficult, if not impossible, to obtain.
To the extent portfolio securities are issued by foreign issuers
or denominated in foreign currencies, the Fund's investment
performance is affected by the strength or weakness of the U.S.
dollar against these currencies. If the dollar falls relative to
the Japanese yen, for example, the dollar value of a yen-
denominated stock held in the portfolio will rise even though the
price of the stock remains unchanged. Conversely, if the dollar
rises in value relative to the yen, the dollar value of the yen-
denominated stock will fall. (See the discussion of portfolio and
transaction hedging under Portfolio Investments and Strategies.)
MASTER FUND/FEEDER FUND OPTION. Rather than invest in securities
directly, the Fund may in the future seek to achieve its
investment objective by pooling its assets with assets of other
mutual funds managed by the Adviser for investment in another
investment company having the same investment objective and
substantially the same investment policies and restrictions as the
Fund. The purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected that
any such investment company would be managed by the Adviser in
substantially the same manner as the Fund. Shareholders of the
Fund will be given at least 30 days' prior notice of any such
investment, although they will not be entitled to vote on the
action. Such investment would be made only if the Trustees
determine it to be in the best interests of the Fund and its
shareholders.
HOW TO PURCHASE SHARES
You may purchase Fund shares by check, by wire, by electronic
transfer, or by exchange from your account with another Stein Roe
Fund. The initial purchase minimum per Fund account is $2,500;
the minimum for Uniform Gifts/Transfers to Minors Act ("UGMA")
accounts is $1,000; the minimum for accounts established under an
automatic investment plan (i.e., Regular Investments, Dividend
Purchase Option, or the Automatic Exchange Plan) is $1,000 for
regular accounts and $500 for UGMA accounts; and the minimum per
account for Stein Roe IRAs is $500. The initial purchase minimum
is waived for shareholders who participate in the Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs and for clients of the Adviser.
Subsequent purchases must be at least $100, or at least $50 if you
purchase by electronic transfer. If you wish to purchase shares
to be held by a tax-sheltered retirement plan sponsored by the
Adviser, you must obtain special forms for those plans. (See
Shareholder Services.)
BY CHECK. To make an initial purchase of shares of the Fund by
check, please complete and sign the Application and mail it,
together with a check made payable to Stein Roe Funds, to P.O. Box
804058, Chicago, Illinois 60680.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $100, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside the United States.
Should an order to purchase shares of the Fund be cancelled
because your check does not clear, you will be responsible for any
resulting loss incurred by the Fund.
BY WIRE. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to the Fund's custodian bank. Your bank may
charge you a fee for sending the wire. If you are opening a new
account by wire transfer, you must first telephone the Trust to
request an account number and furnish your social security or
other tax identification number. Neither the Fund nor the Trust
will be responsible for the consequences of delays, including
delays in the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
State Street Bank & Trust Company
ABA Routing No. 011000028
Boston, Massachusetts
Attention: Custody
Fund No. 7123; Stein Roe International Fund
Account of (exact name(s) in registration)
Shareholder Account No. _________
BY ELECTRONIC TRANSFER. You may also make subsequent investments
by an electronic transfer of funds from your bank checking
account. Electronic transfer allows you to make purchases at your
request ("Special Investments") by calling 800-338-2550 or at pre-
scheduled intervals ("Regular Investments"). (See Shareholder
Services.) Electronic transfer purchases are subject to a $50
minimum and a $100,000 maximum. You may not open a new account
through electronic transfer. Should an order to purchase shares
of the Fund be cancelled because your electronic transfer does not
clear, you will be responsible for any resulting loss incurred by
the Fund.
BY EXCHANGE. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information on the Exchange
Privilege under How to Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of the Fund's
shares is made at the Fund's net asset value (see Net Asset Value)
next determined after receipt of payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment order
received by telephone on a business day before 2:00 p.m., Central
time, is effective on the next business day.
CONDITIONS OF PURCHASE. Each purchase order for the Fund must be
accepted by an authorized officer of the Trust in Chicago and is
not binding until accepted and entered on the books of the Fund.
Once your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interests of the Trust or of the
Fund's shareholders. The Trust also reserves the right to waive
or lower its investment minimums for any reason.
PURCHASES THROUGH THIRD PARTIES.
You may purchase (or redeem) shares through investment dealers,
banks, or other financial institutions. These institutions may
charge for their services or place limitations on the extent to
which you may use the services offered by the Trust. There are no
charges or limitations imposed by the Trust, other than those
described in this prospectus, if shares are purchased (or
redeemed) directly from the Trust.
Some financial institutions that maintain nominee accounts with
the Fund for their clients for whom they hold Fund shares charge
an annual fee of up to 0.25% of the average net assets held in
such accounts for accounting, servicing, and distribution services
they provide with respect to the underlying Fund shares. Such
fees are paid by the Adviser.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST. You may redeem all or a portion of your
shares of the Fund by submitting a written request in "good order"
to the Trust at P.O. Box 804058, Chicago, Illinois 60680. A
redemption request will be considered to have been received in
good order if the following conditions are satisfied:
(1) The request must be in writing, and must indicate the number
of shares or dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The signatures on the written redemption request must be
guaranteed (a signature guarantee is not a notarization, but is a
widely accepted way to protect you and the Fund by verifying your
signature);
(4) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this prospectus
(or a form of resolution acceptable to the Trust); and
(5) The request must include other supporting legal documents as
required from organizations, executors, administrators, trustees,
or others acting on accounts not registered in their names.
BY EXCHANGE. You may redeem all or any portion of your Fund
shares and use the proceeds to purchase shares of any other Stein
Roe Fund offered for sale in your state if your signed, properly
completed Application is on file. AN EXCHANGE TRANSACTION IS A
SALE AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND
MAY RESULT IN CAPITAL GAIN OR LOSS. Before exercising the
Exchange Privilege, you should obtain the prospectus for the Stein
Roe Fund in which you wish to invest and read it carefully. The
registration of the account to which you are making an exchange
must be exactly the same as that of the Fund account from which
the exchange is made and the amount you exchange must meet any
applicable minimum investment of the Stein Roe Fund being
purchased. An exchange may be made by following the redemption
procedure described above under By Written Request and indicating
the Stein Roe Fund to be purchased--a signature guarantee normally
is not required. (See also the discussion below of the Telephone
Exchange Privilege and Automatic Exchanges.)
SPECIAL REDEMPTION PRIVILEGES. The Telephone Exchange Privilege
and the Telephone Redemption by Check Privilege will be
established automatically for you when you open your account
unless you decline these Privileges on your Application. Other
Privileges must be specifically elected. If you do not want the
Telephone Exchange and Redemption Privileges, check the box(es)
under the section "Telephone Redemption Options" when completing
your Application. In addition, a signature guarantee may be
required to establish a Privilege after you open your account. If
you establish both the Telephone Redemption by Wire Privilege and the
Electronic Transfer Privilege, the bank account that you designate
for both Privileges must be the same.
The Telephone Redemption by Check Privilege, Telephone Redemption
by Wire Privilege, and Special Electronic Transfer Redemptions are
not available to redeem shares held by a tax-sheltered retirement
plan sponsored by the Adviser. (See also General Redemption
Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the initial purchase minimum for
the Fund being purchased. GENERALLY, YOU WILL BE LIMITED TO FOUR
TELEPHONE EXCHANGE ROUND-TRIPS PER YEAR AND THE FUND MAY REFUSE
REQUESTS FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A
ROUND-TRIP BEING THE EXCHANGE OUT OF THE FUND INTO ANOTHER STEIN
ROE FUND, AND THEN BACK TO THE FUND). In addition, the Trust's
general redemption policies apply to redemptions of shares by
Telephone Exchange. (See General Redemption Policies.)
The Trust reserves the right to suspend or terminate, at any time
and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Fund.
THEREFORE, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR
TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS
"MARKET-TIMERS." Moreover, the Trust reserves the right to
suspend, limit, modify, or terminate, at any time and without
prior notice, the Telephone Exchange Privilege in its entirety.
Because such a step would be taken only if the Board of Trustees
believes it would be in the best interests of the Fund, the Trust
expects that it would provide shareholders with prior written
notice of any such action unless the resulting delay in the
suspension, limitation, modification, or termination of the
Telephone Exchange Privilege would adversely affect the Fund. IF
THE TRUST WERE TO SUSPEND, LIMIT, MODIFY, OR TERMINATE THE
TELEPHONE EXCHANGE PRIVILEGE, A SHAREHOLDER EXPECTING TO MAKE A
TELEPHONE EXCHANGE MIGHT FIND THAT AN EXCHANGE COULD NOT BE
PROCESSED OR THAT THERE MIGHT BE A DELAY IN THE IMPLEMENTATION OF
THE EXCHANGE. (See How to Redeem Shares--By Exchange.) During
periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address. The
Telephone Redemption by Check Privilege is not available to redeem
shares held by a tax-sheltered retirement plan sponsored by the
Adviser.
Telephone Redemption by Wire Privilege. You may use this Privilege
to redeem shares from your account ($1,000 minimum; $100,000 maximum)
by calling 800-338-2550. The proceeds will be transmitted by wire
to your account at a commercial bank previously designated by you
that is a member of the Federal Reserve System. The fee for
wiring proceeds (currently $3.50 per transaction) will be deducted
from the amount wired.
Electronic Transfer Privilege. You may redeem shares by calling
800-338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a checking account previously
designated by you at a bank that is a member of the Automated
Clearing House. You may also request electronic transfers at
scheduled intervals ("Automatic Redemptions"--see Shareholder
Services). Electronic transfers are subject to a $50 minimum and
a $100,000 maximum. A Special Redemption request received by
telephone after 2:00 p.m., Central time, is deemed received on the
next business day.
GENERAL REDEMPTION POLICIES. You may not cancel or revoke your
redemption order once instructions have been received and
accepted. The Trust cannot accept a redemption request that
specifies a particular date or price for redemption or any special
conditions. Please telephone the Trust if you have any questions
about requirements for a redemption before submitting your
request. If you wish to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser, special procedures of
those plans apply to such redemptions. (See Shareholder Services-
- -Tax-Sheltered Retirement Plans.) The Trust reserves the right to
require a properly completed Application before making payment for
shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Trust normally intends to pay proceeds of a Telephone Redemption
paid by wire on the next business day. If you attempt to redeem
shares within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
Generally, you may not use the Exchange Privilege or any Special
Redemption Privilege to redeem shares purchased by check (other
than certified or cashiers' checks) or electronic transfer until
15 days after their date of purchase.
The Trust reserves the right to suspend, limit, modify, or
terminate, at any time and without prior notice, any Privilege or
its use in any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Fund employs
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are genuine.
Use of any Special Redemption Privilege or the Special Electronic
Transfer Redemption Privilege authorizes the Fund and its transfer
agent to tape-record all instructions to redeem. In addition, callers
are asked to identify the account number and registration, and may be
required to provide other forms of identification. Written
confirmations of transactions are mailed promptly to the registered
address; a legend on the confirmation requests that the shareholder
review the transactions and inform the Fund immediately if there is a
problem. If the Fund does not follow reasonable procedures for protecting
shareholders against loss on telephone transactions, it may be liable
for any losses due to unauthorized or fraudulent instructions.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and would be allowed 30 days
to increase the account before the redemption is processed.
Shares in any account you maintain with the Fund or any of the
other Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers for the purchase of shares, or any Stein Roe
Fund liability under the Internal Revenue Code provisions on
backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS. You will receive a confirmation
statement reflecting each of your purchases and redemptions of
shares of the Fund, as well as periodic statements detailing
distributions made by the Fund. Shares purchased by reinvestment
of dividends, by cross-reinvestment of dividends from another
Fund, or through an automatic investment plan will be confirmed to
you quarterly. In addition, the Trust will send you semiannual
and annual reports showing Fund portfolio holdings and will
provide you annually with tax information.
FUNDS-ON-CALL [REGISTERED] 24-HOUR INFORMATION SERVICE. To
access the Stein Roe Funds-on-Call [registered] automated
telephone service, just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call
[registered] provides yields, prices, latest dividends, account
balances, last transaction, and other information 24 hours a day,
seven days a week.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE TRANSACTIONS. If
you have established the Funds-on-Call [registered] transaction
privilege (Funds-on-Call [registered] Application will be
required), you may initiate Special Investments and Redemptions,
Telephone Exchanges, and Telephone Redemptions by Check 24 hours a
day, seven days a week by calling 800-338-2550 on a touch-tone
telephone. These transactions are subject to the terms and
conditions of the individual privileges. (See How to Purchase
Shares and How to Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM. The Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs are professional investment advisory
services available to shareholders. These programs are designed
to provide investment guidance in helping investors to select a
portfolio of Stein Roe Funds. The Stein Roe Counselor Preferred
[SERVICE MARK] program, which automatically adjusts client portfolios
among the Stein Roe Funds, has a fee of up to 1% of assets.
TAX-SHELTERED RETIREMENT PLANS. Booklets describing the following
programs and special forms necessary for establishing them are
available on request. You may use all of the Stein Roe Funds,
except those investing primarily in tax-exempt securities, in
these plans. Please read the prospectus for each fund in which
you plan to invest before making your investment.
Individual Retirement Accounts ("IRAs") for employed persons and
their non-employed spouses.
Prototype Money Purchase Pension and Profit Sharing Plans for
self-employed individuals, partnerships, and corporations.
Simplified Employee Pension Plans permitting employers to provide
retirement benefits to their employees by utilizing IRAs while
minimizing administration and reporting requirements.
SPECIAL SERVICES. The following special services are available to
shareholders. Please call 800-338-2550 or write the Trust for
additional information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25. The account into which distributions are to be
invested may be opened with an initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank checking account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your Application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--to redeem shares from your
account by phone and have the proceeds transmitted by wire to your
checking account ($1,000 minimum; $100,000 maximum).
Special Redemption Option (electronic transfer)--to redeem shares
at any time and have the proceeds deposited directly to your bank
checking account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--to purchase Fund shares
at regular intervals directly from your bank checking account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)--to purchase Fund shares
by telephone and pay for them by electronic transfer of funds from
your checking account ($50 minimum; $100,000 maximum).
Automatic Exchange Plan--to automatically redeem a fixed dollar
amount from your Fund account and invest it in another Stein Roe
Fund account on a regular basis ($50 minimum; $100,000 maximum).
Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank checking account ($50 minimum; $100,000 maximum).
Systematic Withdrawals--to have a fixed dollar amount, declining
balance, or fixed percentage of your account redeemed and sent at
regular intervals by check to you or another payee.
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., Central time) by dividing
the difference between the values of the Fund's assets and
liabilities by the number of shares outstanding. Net asset value
will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, the net asset value of the
Fund should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central time.
In computing the net asset value of the Fund, the values of
portfolio securities are generally based upon market quotations.
Depending upon local convention or regulation, these market
quotations may be the last sale price, last bid or asked price, or
the mean between the last bid and asked prices as of, in each
case, the close of the appropriate exchange or other designated
time. Trading in securities on European and Far Eastern
securities exchanges and over-the-counter markets is normally
completed at various times before the close of business on each
day on which the NYSE is open. Trading of these securities may
not take place on every NYSE business day. In addition, trading
may take place in various foreign markets on Saturdays or on other
days when the NYSE is not open and on which the Fund's net asset
value is not calculated. Therefore, such calculation does not
take place contemporaneously with the determination of the prices
of many of the portfolio securities used in such calculation and
the value of the Fund's portfolio may be significantly affected on
days when shares of the Fund may not be purchased or redeemed.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS. Income dividends for the Fund are normally
declared and paid annually. The Fund intends to distribute by the
end of each calendar year at least 98% of any net capital gains
realized from the sale of securities during the twelve-month
period ended October 31 in that year. The Fund intends to
distribute any undistributed net investment income and net
realized capital gains in the following year.
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank checking account; (3) applied
to purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment into
the same Fund account normally occurs one business day after the
record date. Investment of distributions into another Stein Roe
Fund account occurs on the payable date. If you choose to receive
your distributions in cash, your distribution check normally will
be mailed approximately 15 days after the record date. The Trust
reserves the right to reinvest the proceeds and future
distributions in additional Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
U.S. FEDERAL INCOME TAXES. Your distributions will be taxable to
you, under income tax law, whether received in cash or reinvested
in additional shares. For federal income tax purposes, any
distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital
gains. Distributions of net long-term capital gains will be
taxable to you as long-term capital gain regardless of the length
of time you have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, the Fund is treated as a separate
taxable entity distinct from the other series of the Trust.
FOREIGN INCOME TAXES. Investment income received by the Fund from
sources within foreign countries may be subject to foreign income
taxes withheld at the source. The United States has entered into
tax treaties with many foreign countries that entitle the Fund to
a reduced rate of tax or exemption from tax on such income. It is
impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested
within various countries will fluctuate and the extent to which
tax refunds will be recovered is uncertain. The Fund intends to
operate so as to qualify for treaty-reduced tax rates where
applicable.
To the extent that the Fund is liable for foreign income taxes
withheld at the source, the Fund also intends to operate so as to
meet the requirements of the U.S. Internal Revenue Code to "pass
through" to the Fund's shareholders foreign income taxes paid, but
there can be no assurance that the Fund will be able to do so.
This discussion of U.S. and foreign taxation is not intended to be
a full discussion of income tax laws and their effect on
shareholders. You may wish to consult your own tax advisor. The
foregoing information applies to U.S. shareholders. Foreign
shareholders should consult their tax advisors as to the tax
consequences of ownership of Fund shares.
BACKUP WITHHOLDING. The Trust may be required to withhold federal
income tax ("backup withholding") from certain payments to you,
generally redemption proceeds. Backup withholding may be required
if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.
These certifications are contained in the Application that you
should complete and return when you open an account. The Fund
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for the Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a
credit on your federal income tax return.
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
MANAGEMENT OF THE FUND
TRUSTEES AND ADVISERS. The Board of Trustees of the Trust has
overall management responsibility for the Trust and the Fund. See
the Statement of Additional Information for the names of and
additional information about the trustees and officers. The
Fund's Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
Fund, subject to the direction of the Board of Trustees. The
Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940. The Adviser was organized in
1986 to succeed to the business of Stein Roe & Farnham, a
partnership that had advised and managed mutual funds since
1949. The Adviser is a wholly owned indirect subsidiary of
Liberty Financial Companies, Inc. ("Liberty Financial"), which in
turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
PORTFOLIO MANAGERS. Bruno Bertocci and David P. Harris, co-
portfolio managers of the Fund, joined the Adviser in 1995,
as senior vice president and vice president, respectively, to
create Stein Roe Global Capital Management, a dedicated
global and international equity management unit. Messrs.
Bertocci and Harris are also employed by Colonial Management
Associates, Inc., a subsidiary of Liberty Financial, as vice
presidents, effective January, 1996.
Prior to joining the Adviser, Mr. Bertocci was a senior
global equity portfolio manager with Rockefeller & Co.
("Rockefeller") from 1983 to 1995. While at Rockefeller, he
served as portfolio manager for the Fund, when Rockefeller
was the Fund's sub-adviser. Mr. Bertocci managed
Rockefeller's London office from 1987 to 1989 and its Hong
Kong office from 1989 to 1990. Prior to working at
Rockefeller, he served for three years at T. Rowe Price
Associates. Mr. Bertocci is a graduate of Oberlin College
and holds an M.B.A. from Harvard University.
Mr. Harris was a portfolio manager with Rockefeller from 1990
to 1995. After earning a bachelor's degree from the
University of Michigan, he was an actuarial associate for
GEICO before returning to school to earn an M.B.A. from
Cornell University.
FEES AND EXPENSES. In return for its services, the Adviser
receives a monthly fee from the Fund, computed and accrued daily,
at an annual rate of 1% of average net assets. This fee is higher
than the fees paid by most mutual funds. Please refer to the Fee
Table for a description of the Fund's expense limitation.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its net
income and capital gains and losses on disposition of Fund assets.
PORTFOLIO TRANSACTIONS. The Adviser places the orders for the
purchase and sale of portfolio securities and options and futures
transactions for the Fund. In doing so, the Adviser seeks to
obtain the best combination of price and execution, which involves
a number of judgmental factors.
TRANSFER AGENT. SteinRoe Services Inc., One South Wacker Drive,
Chicago, Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
DISTRIBUTOR. The shares of the Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Fund. Foreign securities are maintained in the custody of
foreign banks and trust companies that are members of the Bank's
Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other Fund was unable to meet its obligations.
<PAGE>
CERTIFICATE OF AUTHORIZATION (FOR USE BY CORPORATIONS AND
ASSOCIATIONS ONLY)
A corporation or association must complete this Certificate and
submit it with the Fund Application, each written redemption,
transfer or exchange request, and each request to terminate or
change any of the Privileges or special service elections.
If the entity submitting the Certificate is an association, the
word "association" shall be deemed to appear each place the word
"corporation" appears. If the officer signing this Certificate is
named as an authorized person, another officer must countersign
the Certificate. If there is no other officer, the person signing
the Certificate must have his signature guaranteed. If you are
not sure whether you are required to complete this Certificate,
call the office of the Stein Roe Funds, 800-338-2550 toll-free.
The undersigned hereby certifies that he is the duly elected
Secretary of _________________________________________
(Name of Corporation/Association)
(the "Corporation") and that the following individual(s):
Authorized Persons
- -------------------------- ----------------------------
Name Title
- -------------------------- ----------------------------
Name Title
- -------------------------- ----------------------------
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any manner,
or to redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.
Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and Bylaws provide that he is the only
person authorized to so act.
Unless expressly declined on the Application (or other form
acceptable to the Funds), the undersigned further certifies that
the Corporation has authorized by resolution or otherwise the
establishment of the Telephone Exchange and Telephone Redemption
by Check Privileges for the Corporation's account with any Fund
offering any such Privilege. If elected on the Application (or
other form acceptable to the Funds), the undersigned also
certifies that the Corporation has similarly authorized
establishment of the Electronic Transfer, Telephone Redemption by
Wire, and Check-Writing Privileges for the Corporation's account
with any Fund offering said Privileges. The undersigned has
further authorized each Fund and its transfer agent to honor any
written, telephonic, or telegraphic instructions furnished
pursuant to any such Privilege by any person believed by the Fund
or its transfer agent or their agents, officers, directors,
trustees, or employees to be authorized to act on behalf of the
Corporation and agrees that neither the Fund nor its transfer
agent, their agents, officers, directors, trustees, or employees
will be liable for any loss, liability, cost, or expense for
acting upon any such instructions.
These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.
IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of _________________, 19___.
-------------------------
Secretary
-------------------------
Signature Guarantee*
*Only required if the person signing
the Certificate is the only person
named as "Authorized Person."
CORPORATE
SEAL
HERE
<PAGE>
[STEIN ROE FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Total Return Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
P.O. Box 804058
Chicago, Illinois 60680
800-338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
IN296
<PAGE>
STEIN ROE INVESTMENT TRUST
STEIN ROE YOUNG INVESTOR FUND
THE FEBRUARY 1, 1996 DATE OF THIS PROSPECTUS IS NULL AND VOID.
THE NEW DATE OF THIS PROSPECTUS IS JULY 1, 1996
SUPPLEMENT
INTERFUND LENDING PROGRAM. On June 18, 1996, the Fund's
shareholders approved changes in the Fund's investment
restrictions regarding borrowing and lending to permit the Fund to
participate in an interfund lending program with other mutual
funds managed by the Adviser. The fourth paragraph under
Restrictions on the Funds' Investments is revised to read as
follows:
"The Fund may not make loans except that it may (1) purchase
money market instruments and enter into repurchase agreements;
(2) acquire publicly-distributed or privately-placed debt
securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending
program with other Stein Roe Funds. The Fund may not borrow
money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the Fund's aggregate borrowings
(including reverse repurchase agreements) nor the Fund's
aggregate loans at any one time may exceed 33 1/3% of the
value of its total assets."
FINANCIAL HIGHLIGHTS. The per share data (for a share
outstanding throughout the period) contained in the section
Financial Highlights is updated by adding the following unaudited
financial information for the six months ended March 31, 1996:
NET ASSET VALUE, BEGINNING OF PERIOD.................$14.29
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................0.04
Net realized and unrealized gains on investments... 1.96
------
Total from Investment Operations...................2.00
------
DISTRIBUTIONS
Net investment income...............................(0.05)
Net realized capital gains........................ (0.51)
------
Total Distributions............................. (0.56)
------
NET ASSET VALUE, END OF PERIOD.......................$15.73
------
------
Ratio of net expenses to average net assets (a)......*1.10%
Ratio of net investment income to average net
assets (b) .......................................*0.47%
Portfolio turnover rate.................................44%
Average commissions (per share).....................$0.0632
Total return (b).....................................14.39%
Net assets, end of period (000 omitted).............$68,311
_______________
*Annualized.
(a) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Adviser, this ratio would
have been 1.68% for the period ended March 31, 1996.
(b) Computed giving effect to the Adviser's expense limitation
undertaking.
NEW ADDRESS FOR ORDERS. Effective July 5, 1996, orders for
purchases and redemptions of Fund shares should be mailed to
SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [SERVICE MARK]
Program should send orders to SteinRoe Services Inc. at P.O. Box
803938, Chicago, Illinois 60680.
The Statement of Additional Information dated July 1, 1996
and the most recent financial statements may be obtained without
charge by writing to the Secretary of the Trust at One South Wacker
Drive, Chicago, Illinois 60606, or by calling 800-338-2550.
NEW INSTRUCTIONS FOR PURCHASES BY WIRE TRANSFER. Effective
July 5, 1996, wire transfers for the purchase of Fund shares
should be addressed as follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. 14; Stein Roe Young Investor Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Participants in the Stein Roe Counselor [SERVICE MARK]
program should continue to use the instructions in the Prospectus
under How to Purchase Shares--By Wire for wire purchases.
PURCHASE MINIMUMS. The initial purchase minimum to open an
account under an automatic investment plan is $100. The minimum was
due to increase to $500 on July 1, 1996, but the $100 minimum has been
extended until further notice.
PORTFOLIO MANAGER CHANGE. Arthur J. McQueen joined Erik P.
Gustafson and David P. Brady as a co-portfolio manager of Young Investor
Fund in April, 1996. Mr. McQueen earned a B.S. from Villanova
University (1980) and an M.B.A. from the Wharton School of the
University of Pennsylvania (1987). Mr. McQueen is a senior
vice president and senior research analyst with Stein Roe &
Farnham Incorporated, which he joined in 1987. He was previously
employed by Citibank and GTE.
_____________________________
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YOUNG INVESTOR FUND
The Fund's objective is long-term capital appreciation. The Fund
invests in securities of companies that affect the lives of
children or teenagers. The Fund is also intended to be a fun,
educational experience for young investors and their parents.
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST, an open-end management investment
company.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
If you have any questions about new Fund accounts, please call
800-403-KIDS (800-403-5437); for existing accounts, shareholders
should call 800-338-2550.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at the address shown on the back cover or by calling the
Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 1, 1996.
<PAGE>
TABLE OF CONTENTS
Page
Summary .................................2
Fee Table ..............................3
Financial Highlights.....................4
The Fund ............................... 4
Investment Policies .....................5
Portfolio Investments and Strategies.....5
Investment Restrictions................ .7
Risks and Investment Considerations.... .8
How to Purchase Shares ..................9
By Check .............................9
By Wire ..............................9
By Electronic Transfer...............10
By Exchange .........................10
Purchase Price and Effective Date ...10
Conditions of Purchase ..............10
Purchases Through Third Parties......10
How to Redeem Shares ...................11
By Written Request ..................11
By Exchange .........................11
Special Redemption Privileges .......11
General Redemption Policies .........13
Shareholder Services ...................14
Net Asset Value ........................15
Distributions and Income Taxes .........16
Investment Return ......................17
Management of the Fund .................17
Organization and Description of Shares..19
SUMMARY
STEIN ROE YOUNG INVESTOR FUND (the "Fund") is a series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. The Fund is a "no-load" fund. There are no
sales or redemption charges. (See The Fund and Organization and
Description of Shares.) This prospectus is not a solicitation in any
jurisdiction in which the Fund is not registered for sale.
INVESTMENT OBJECTIVES AND POLICIES.
The Fund's investment objective is long-term capital appreciation.
It seeks to achieve its objective by investing primarily in common
stocks and other equity-type securities that Stein Roe believes to
have long-term appreciation potential. The Fund invests primarily
in securities of companies that appeal to or affect the lives of
children or teenagers. It is designed for long-term investors,
particularly children and teenagers.
In addition to the Fund's investment objective and policies, the
Fund also has an educational objective. It seeks to teach
children and teenagers about the Fund, basic economic principles,
and personal finance through a variety of educational materials
prepared and paid for by the Fund.
There can be no guarantee that the Fund will achieve its
investment objective. Please see Investment Policies and
Portfolio Investments and Strategies for further information.
<PAGE>
INVESTMENT RISKS.
The Fund is designed for long-term investors who are willing to
accept the investment risk and volatility of equity-type
securities in general, as well as the specific types of equity
securities emphasized by the Fund. By investing in companies
whose products or services appeal to young investors, the Fund
emphasizes various consumer goods sectors. Since the Fund may
invest in foreign securities, investors should understand and
consider carefully the risks involved in foreign investing.
Investing in foreign securities involves certain considerations
involving both risks and opportunities not typically associated
with investing in U.S. securities. Please see Investment
Policies, Portfolio Investments and Strategies, and Risks and
Investment Considerations for further information.
PURCHASES.
The minimum initial investment for the Fund is $2,500; the minimum
investment for Uniform Gifts/ Transfers to Minors Act accounts is
$1,000. Additional investments must be at least $50. Shares may
be purchased by check, by bank wire, by electronic transfer, or by
exchange from another Stein Roe Fund. For more detailed
information, see How to Purchase Shares.
REDEMPTIONS.
For information on redeeming Fund shares, including the special
redemption privileges, see How to Redeem Shares.
NET ASSET VALUE.
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value is determined as of
the close of trading on the New York Stock Exchange. (For more
detailed information, see Net Asset Value.)
DISTRIBUTIONS.
Dividends are normally declared and paid annually. Distributions
will be reinvested into your Fund account unless you elect to have
them paid in cash, deposited by electronic transfer into your bank
checking account, or invested in another Stein Roe Fund account.
(See Distributions and Income Taxes and Shareholder Services.)
MANAGEMENT AND FEES.
Stein Roe & Farnham Incorporated ("Stein Roe") provides management
and investment advisory services to the Fund. For a description
of Stein Roe and its fees, see Management of the Fund.
If you have any additional questions about the Fund, please feel
free to discuss them with an account representative by calling
800-338-2550.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None*
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after expense
reimbursement; as a percentage of average net assets)
Management and Administrative Fees (after
expense reimbursement) None
12b-1 Fees None
Other Expenses (after expense reimbursement) 1.25%
-----
Total Fund Operating Expenses (after expense
reimbursement) 1.25%
-----
-----
- -----------
*There is a $3.50 charge for wiring redemption proceeds to your bank.
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$13 $40 $69 $151
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year, except that it
has been adjusted to reflect changes in the Fund's transfer agency
services and fees. From time to time, the Adviser may voluntarily
absorb certain expenses of the Fund. Stein Roe has agreed to
voluntarily waive its management fee and absorb the expenses of
the Fund to the extent that such fees and expenses on an
annualized basis exceed 1.25% of its annual average net assets
from February 1, 1996 through January 31, 1997, subject to earlier
termination by the Adviser on 30 days' notice (previously, Stein
Roe had undertaken to reimburse the Fund for expenses in excess of
0.99%). Any such absorption will temporarily lower the Fund's
overall expense ratio and increase its overall return to
investors. Absent the expense undertaking, Management and
Administrative Fees, Other Expenses, and Total Fund Operating
Expenses would have been 0.76%, 2.11%, and 2.87%, respectively.
(Also see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods; that all income
dividends and capital gain distributions are reinvested in
additional Fund shares; and that, for purposes of management fee
breakpoints, net assets remain at the same level as in the most
recently completed fiscal year.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing the Fund's expenses
and in providing a basis for comparison with other mutual funds,
it should not be used for comparison with other investments using
different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis for the period shown and has been audited by
Arthur Andersen LLP, independent public accountants. The
auditors' report was unqualified. The table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
Period Ended Year Ended
Sept. 30, Sept. 30,
1994 (a) 1995
-------------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.24
------ -------
Income from investment operations
Net investment income 0.03 0.06
Net realized and unrealized gains on investments 0.21 4.07
Total from investment operations 0.24 4.13
------ -------
Distributions from net investment income -- (0.08)
------ -------
NET ASSET VALUE, END OF PERIOD $10.24 $14.29
------ -------
------ -------
Ratio of net expenses to average net assets (b) *0.99% 0.99%
Ratio of net investment income to average
net assets (c) *1.07% 0.47%
Portfolio turnover rate **12% 55%
Total return **2.40% 40.58%
Net assets, end of period (000 omitted) $8,176 $31,401
________________________________
*Annualized.
**Not annualized.
(a) From commencement of operations on April 29, 1994.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the investment adviser, this
ratio would have been 4.58% for the period ended September 30,
1994 and 2.87% for the year ended September 30, 1995.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
THE FUND
The Fund is a no-load
mutual fund
STEIN ROE YOUNG INVESTOR FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a
portfolio of securities such as common stocks. A mutual fund
allows you to pool your money with that of other investors in
order to obtain professional investment management. Mutual funds
generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping. The Fund does not impose commissions or charges
when shares are purchased or redeemed.
The Fund is a series of the Stein Roe Investment Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
The Fund is managed
by Stein Roe & Farnham
Stein Roe & Farnham Incorporated ("Stein Roe") provides investment
advisory, administrative, and bookkeeping and accounting services
to the Fund. Stein Roe also manages and
provides investment advisory services for several other no-load
mutual funds with different investment objectives, including
equity funds, international funds, taxable and tax-exempt bond
funds, and money market funds. To obtain prospectuses and
other information on any of those mutual funds, please call 800-
338-2550.
INVESTMENT POLICIES
The Fund invests primarily
in equity securities
The Fund's investment objective is long-term capital appreciation.
It seeks to achieve its objective by investing primarily in common
stocks and other equity-type securities that, in the opinion of
Stein Roe, have long-term appreciation potential.
The Fund invests in
companies that affect
the lives of children
or teenagers
Under normal circumstances, at least 65% of the Fund's total
assets will be invested in securities of companies that, in the
opinion of Stein Roe, directly or through one or more
subsidiaries, affect the lives of children or teenagers. Such
companies may include companies that produce products or services
that children or teenagers use, are aware of, or could potentially
have an interest in.
Although the Fund invests primarily in common stocks and other
equity-type securities (such as preferred stocks, securities
convertible into or exchangeable for common stocks, and warrants
or rights to purchase common stocks), it may invest up to 35% of
its total assets in debt securities. The Fund may invest in
securities of smaller emerging companies as well as securities of
well-seasoned companies of any size. Smaller companies, however,
involve higher risks in that they typically have limited product
lines, markets, and financial or management resources. In
addition, the securities of smaller companies may trade less
frequently and have greater price fluctuation than larger
companies, particularly those operating in countries with
developing markets. The Fund may also employ investment
techniques described elsewhere in this prospectus. (See Risks and
Investment Considerations and Fees and Expenses.)
The Fund is intended to
be a fun, educational
experience for young investors
and their parents
In addition to the Fund's investment objective and policies, the
Fund also has an educational objective. The Fund will seek to
educate its shareholders by providing educational materials
regarding personal finance and investing as well as materials on
the Fund and its portfolio holdings.
PORTFOLIO INVESTMENTS AND STRATEGIES
The Fund may invest in
"investment grade" debt
securities
In pursuing its investment objective, the Fund may invest in debt
securities. A debt security is an obligation of a borrower to
make payments of principal and interest to the holder of the
security. To the extent the Fund invests in debt securities, such
holdings will be subject to interest rate risk and credit risk.
Interest rate risk is the risk that the value of a portfolio will
fluctuate in response to changes in interest rates. Generally,
the debt component of a portfolio will tend to decrease in value
when interest rates rise and increase in value when interest rates
fall. Credit risk is the risk that an issuer will be unable to make
principal and interest payments when due. Investments in debt securities
are limited to those that are rated within the four highest grades
(generally referred to as "investment grade") assigned by a nationally
recognized statistical rating organization. Investments in unrated debt
securities are limited to those deemed to be of comparable quality by
Stein Roe. Securities rated within the fourth highest grade may possess
speculative characteristics. If the rating of a security held by the
Fund is lost or reduced below investment grade, the Fund is not required
to dispose of the security--Stein Roe will, however, consider that
fact in determining whether the Fund should continue to hold the
security. When Stein Roe considers a temporary defensive position
advisable, the Fund may invest without limitation in high-quality
fixed income securities, or hold assets in cash or cash
equivalents.
The Fund may invest up
to 25% of its assets in
foreign securities, which
may entail a greater degree
of risk than domestic securities
The Fund may invest up to 25% of its total assets in foreign
securities. (See Risks and Investment Considerations.) In
addition to, or in lieu of, such direct investment, the Fund may
construct a synthetic foreign position by (a) purchasing a debt
instrument denominated in one currency, generally U.S. dollars;
and (b) concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar prior to
the settlement date--this risk is in addition to the risk that the
value of the foreign security purchased may decline.
The Fund may make loans of its portfolio securities to broker-
dealers and banks and enter into reverse repurchase agreements
subject to certain restrictions described in the Statement of
Additional Information. The Fund may invest in securities
purchased on a when-issued or delayed-delivery basis. Although
the payment terms of these securities are established at the time
the Fund enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons.
The Fund may invest
in "derivative products"
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional, exchange-traded and non-exchange-traded
options, futures contracts, futures options, forward contracts,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, or an interest rate.
The Fund does not expect to invest more than 5% of its net assets
in any type of Derivative except for options, futures contracts,
and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on Stein Roe's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund may: (1)
purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes, or other benchmarks. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund foregoes, during the option's
life, the opportunity to profit from increases in market value of
the security covering the call option above the sum of the premium
and the exercise price of the call. There can be no assurance
that a liquid market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
INVESTMENT RESTRICTIONS
The Fund will seek to
limit the impact of any
one investment on the
portfolio
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S.Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical investment
objective.
The Fund will not invest more than 25% of its total assets (at the
time of investment) in the securities of companies in any one
industry.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements, /1/ provided that
it will not invest more than 5% of its net assets in repurchase
agreements maturing in more than seven days, and any other
illiquid securities. An investment in illiquid securities could
involve relatively greater risks and costs to the Fund.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
The investment restrictions described in the first three paragraphs
of this section are fundamental policies and, as such, can be
changed only with the approval of a "majority of the outstanding
voting securities" as defined in the Investment Company Act of
1940. The investment objective is non-fundamental and, as such,
may be changed by the Board of Trustees without shareholder
approval. Any such change may result in the Fund having an
investment objective different from the objective the shareholder
considered appropriate at the time of investment in the Fund. All
of the investment restrictions are set forth in the Statement of
Additional Information.
RISKS AND INVESTMENT CONSIDERATIONS
The Fund is designed for
long-term investors who
desire to participate in
the stock market and places
an emphasis on companies that
appeal to young investors.
These investors can accept
more investment risk and
volatility than the stock
market in general but want
less investment risk and
volatility than aggressive
capital appreciation funds
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund is designed
for long-term investors who desire to participate in the stock
market and places an emphasis on companies that appeal to young
investors. These investors can accept more investment risk and
volatility than the stock market in general but want less
investment risk and volatility than aggressive capital
appreciation funds. Of course, there can be no guarantee that the
Fund will achieve its objective. The Fund is also designed to be
a fun, educational experience for young investors and their
parents.
While the Fund seeks to reduce risk by investing in a diversified
portfolio, diversification does not eliminate all risk. The Fund
will not, however, invest more than 25% of the total value of its
assets (at the time of investment) in the securities of companies
in any one industry. By investing in companies whose products or
services appeal to young investors, the Fund emphasizes various
consumer goods sectors.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. Accordingly, the portfolio
turnover rate may vary significantly from year to year, but is not
expected to exceed 100% under normal market conditions. A high
rate of portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses. (See
Distributions and Income Taxes.) The Fund is not intended to be
an income-producing investment, although it may produce income.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, less market liquidity, more market
volatility, less developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER/FEEDER OPTION.
Rather than investing in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by Stein Roe for
investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by Stein Roe in substantially the same manner as
the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
HOW TO PURCHASE SHARES
$2,500 minimum investment;
$1,000 for UGMA accounts
You may purchase Fund shares by check, by wire, by electronic
transfer, or by exchange from your account with another Stein Roe
Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
accounts is $1,000; the minimum for accounts established under an
automatic investment plan of at least $50 per month (i.e., Regular
Investments or the Automatic Exchange Plan) is $100 through June
30, 1996, after which time it will be $500; and the minimum per
account for Stein Roe IRAs is $500. The initial purchase minimum
is waived for shareholders who participate in the Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs and for clients of Stein Roe. Subsequent
purchases must be at least $50. (See Shareholder Services.)
BY CHECK.
You may purchase shares
by check, by wire, by
electronic transfer, or
by exchange
To make an initial purchase of shares of the Fund by check, please
complete and sign the Application and mail it, together with a
check made payable to Stein Roe Funds, to P.O. Box 804058,
Chicago, Illinois 60680.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $50, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside the United States.
Should an order to purchase shares of the Fund be cancelled
because your check does not clear, you will be responsible for any
resulting loss incurred by the Fund.
BY WIRE.
You also may pay for shares by instructing your bank to wire
federal funds (monies of member banks within the Federal Reserve
System) to the Fund's custodian bank. Your bank may charge you a
fee for sending the wire. If you are opening a new account by
wire transfer, you must first telephone the Trust to request an
account number and furnish your social security or other tax
identification number. Neither the Fund nor the Trust will be
responsible for the consequences of delays, including delays in
the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
State Street Bank and Trust Company
ABA Routing No. 011000028
Boston, Massachusetts
Attention: Custody
Fund No. 7124; Stein Roe Young Investor Fund
Account of (exact name(s) in registration)
Shareholder Account No. ___________
BY ELECTRONIC TRANSFER.
You may also make subsequent investments by an electronic transfer
of funds from your bank checking account. Electronic transfer
allows you to make purchases at your request ("Special
Investments") by calling 800-338-2550 or at pre-scheduled
intervals ("Regular Investments"). (See Shareholder Services.)
Electronic transfer purchases are subject to a $50 minimum and a
$100,000 maximum. You may not open a new account through
electronic transfer. Should an order to purchase shares of the
Fund be cancelled because your electronic transfer does not clear,
you will be responsible for any resulting loss incurred by the
Fund.
BY EXCHANGE.
You may purchase shares by exchange of shares from another Stein
Roe Fund account either by phone (if the Telephone Exchange
Privilege has been established on the account from which the
exchange is being made), by mail, in person, or automatically at
regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information on the Exchange
Privilege under How to Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE.
Purchases are made at net
asset value
Each purchase of the Fund's shares is made at the Fund's net asset
value (see Net Asset Value) next determined after receipt of
payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment order
received by telephone on a business day before 2:00 p.m., Central
time, is effective on the next business day.
CONDITIONS OF PURCHASE.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until
accepted and entered on the books of the Fund. Once your purchase
order has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interests of the Trust or of the Fund's shareholders. The Trust
also reserves the right to waive or lower its investment minimums
for any reason.
PURCHASES THROUGH THIRD PARTIES.
You may purchase (or redeem) shares through investment dealers,
banks, or other financial institutions. These institutions may
charge for their services or place limitations on the extent to
which you may use the services offered by the Trust. There are no
charges or limitations imposed by the Trust, other than those
described in this prospectus, if shares are purchased (or
redeemed) directly from the Trust.
Some financial institutions that maintain nominee accounts with
the Fund for their clients for whom they hold Fund shares charge
an annual fee of up to 0.25% of the average net assets held in
such accounts for accounting, servicing, and distribution services
they provide with respect to the underlying Fund shares. Such
fees are paid by Stein Roe.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST.
To make sure your
redemption request is
in "good order," please
read this section carefully
You may redeem all or a portion of your shares of the Fund by
submitting a written request in "good order" to the Trust at P.O.
Box 804058, Chicago, Illinois 60680. A redemption request will be
considered to have been received in good order if the following
conditions are satisfied:
(1) The request must be in writing, and must indicate the number
of shares or dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The signatures on the written redemption request must be
guaranteed (a signature guarantee is not a notarization, but is a
widely accepted way to protect you and the Fund by verifying your
signature);
(4) The request must include other supporting legal documents as
required from organizations, executors, administrators, trustees,
or others acting on accounts not registered in their names.
BY EXCHANGE.
You may exchange shares
of the Fund for shares of
any other Stein Roe Fund
qualified for sale to
residents of your state
You may redeem all or any portion of your Fund shares and use the
proceeds to purchase shares of any other Stein Roe Fund offered
for sale in your state if your signed, properly completed
Application is on file.
An exchange transaction is a sale and purchase of shares for
federal income tax purposes and may result in capital gain or
loss. Before exercising the Exchange Privilege, you should obtain
the prospectus for the Stein Roe Fund in which you wish to invest
and read it carefully. The registration of the account to which
you are making an exchange must be exactly the same as that of the
Fund account from which the exchange is made and the amount you
exchange must meet any applicable minimum investment of the Stein
Roe Fund being purchased. An exchange may be made by following
the redemption procedure described above under By Written Request
and indicating the Stein Roe Fund to be purchased--a signature
guarantee normally is not required. (See also the discussion
below of the Telephone Exchange Privilege and Automatic
Exchanges.)
SPECIAL REDEMPTION PRIVILEGES.
Telephone Redemption
Privileges will be established
for you automatically
The Telephone Exchange Privilege and the Telephone Redemption by
Check Privilege will be established automatically for you when you
open your account unless you decline these Privileges on your
Application. Other Privileges must be
specifically elected. If you do not want the Telephone Exchange
and Redemption Privileges, check the box(es) under the section
"Telephone Redemption Options" when completing your Application.
In addition, a signature guarantee may be required to establish a
Privilege after you open your account. If you establish both the
Telephone Redemption by Wire Privilege and the Electronic Transfer
Privilege, the bank account that you designate for both Privileges
must be the same.
The Telephone Redemption by Check Privilege, Telephone Redemption
by Wire Privilege, and Special Electronic Transfer Redemptions are
not available to redeem shares held by a tax-sheltered retirement
plan sponsored by the Adviser. (See also General Redemption
Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND THE FUND MAY REFUSE REQUESTS FOR
TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-TRIP
BEING THE EXCHANGE OUT OF THE FUND INTO ANOTHER STEIN ROE FUND,
AND THEN BACK TO THE FUND). In addition, the Trust's general
redemption policies apply to redemptions of shares by Telephone
Exchange. (See General Redemption Policies.)
Restrictions on
Special Redemption
Privileges apply
The Trust reserves the right to suspend or terminate, at any time
and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Fund.
THEREFORE, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR
TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS
"MARKET-TIMERS." Moreover, the Trust reserves the right to
suspend, limit, modify, or terminate, at any time and without
prior notice, the Telephone Exchange Privilege in its entirety.
Because such a step would be taken only if the Board of Trustees
believes it would be in the best interests of the Fund, the Trust
expects that it would provide shareholders with prior written
notice of any such action unless the resulting delay in the
suspension, limitation, modification, or termination of the
Telephone Exchange Privilege would adversely affect the Fund. If
the Trust were to suspend, limit, modify, or terminate the
Telephone Exchange Privilege, a shareholder expecting to make a
Telephone Exchange might find that an exchange could not be
processed or that there might be a delay in the implementation of
the exchange. (See How to Redeem Shares--By Exchange.) During
periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Wire Privilege. You may use this Privilege to
redeem shares from your account ($1,000 miminum; $100,000 maximum) by
calling 800-338-2550. The proceeds will be transmitted by wire
to your account at a commercial bank previously designated by you
that is a member of the Federal Reserve System. The fee for
wiring proceeds (currently $3.50 per transaction) will be deducted
from the amount wired.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address.
Electronic Transfer Privilege. You may redeem shares by calling
800-338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a checking account previously
designated by you at a bank that is a member of the Automated
Clearing House. You may also request electronic transfers at
scheduled intervals ("Automatic Redemptions"--see Shareholder
Services). Electronic transfers are subject to a $50 minimum and
a $100,000 maximum. A Special Redemption request received by
telephone after 2:00 p.m., Central time, is deemed received on the
next business day.
GENERAL REDEMPTION POLICIES.
Please read the General
Redemption Policies carefully
You may not cancel or revoke your redemption order once
instructions have been received and accepted. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. Please telephone
the Trust if you have any questions about requirements for a
redemption before submitting your request. The Trust reserves the
right to require a properly completed Application before making
payment for shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Trust normally intends to pay proceeds of a Telephone Redemption
paid by wire on the next business day. If you attempt to redeem
shares within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
Generally, you may not use the Exchange Privilege or any Special
Redemption Privilege to redeem shares purchased by check (other
than certified or cashiers' checks) or electronic transfer until
15 days after their date of purchase.
The Trust reserves the right at any time without prior notice to
suspend, limit, modify, or terminate any Privilege or its use in
any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Fund employs
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Fund and its
transfer agent to tape-record all instructions to redeem. In addition,
callers are asked to identify the account number and registration, and
may be required to provide other forms of identification. Written
confirmations of transactions are mailed promptly to the registered
address; a legend on the confirmation requests that the shareholder
review the transactions and inform the Fund immediately if there is a
problem. If the Fund does not follow reasonable procedures for
protecting shareholders against loss on telephone transactions, it
may be liable for any losses due to unauthorized or fraudulent
instructions.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and would be allowed 30 days
to increase the account before the redemption is processed.
Shares in any account you maintain with the Fund or any of the
other Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers for the purchase of shares, or any Stein Roe
Fund liability under the Internal Revenue Code provisions on
backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS.
You will receive
quarterly communications
from the Fund
You will receive a confirmation statement reflecting each of your
purchases and redemptions of shares of the Fund. Shares purchased
by reinvestment of dividends, by cross-reinvestment of dividends from
another Fund, or through an automatic investment plan will be
confirmed to you quarterly. The Trust will send you quarterly
materials on the Fund and its portfolio holdings, will send you
semiannual and annual reports, and will provide you annually with
tax information.
FUNDS-ON-CALL [REGISTERED] 24-HOUR INFORMATION SERVICE.
Funds-on-Call [registered]
allows you to have 24-hour
access to information
To access the Stein Roe Funds-on-Call [registered] automated
telephone service, just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call
[registered] provides yields, prices, latest dividends, account
balances, last
transaction, and other information 24 hours a day, seven days a
week.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE TRANSACTIONS.
If you have established the Funds-on-Call [registered] transaction
privilege (Funds-on-Call [registered] Application will be
required), you may initiate Special Investments and Redemptions,
Telephone Exchanges, and Telephone Redemptions by Check 24 hours a day,
seven days a week by calling 800-338-2550 on a touch-tone telephone.
These transactions are subject to the terms and conditions of the
individual privileges. (See How to Purchase Shares and How to Redeem
Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM.
The Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] programs are professional investment
advisory services available to shareholders. These programs are
designed to provide investment guidance in helping investors to
select a portfolio of Stein Roe Funds. The Stein Roe Counselor
Preferred [SERVICE MARK] program, which automatically adjusts
client portfolios among the Stein Roe Funds, has a fee of up to 1%
of assets.
TAX-SHELTERED RETIREMENT PLAN.
Booklets describing the Individual Retirement Account ("IRA")
program and special forms necessary for establishing it are
available on request. IRAs are available for employed persons and
their non-employed spouses. You may use all of the Stein Roe
Funds, except those investing primarily in tax-exempt securities,
in the plan. Please read the prospectus for each fund in which
you plan to invest before making your investment.
SPECIAL SERVICES.
The Fund offers special
services to meet your needs
The following special services are available to shareholders.
Please call 800-338-2550 or write the Trust for additional
information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank checking account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your Application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--to redeem shares from your
account by phone and have the proceeds transmitted by wire to your
checking account ($1,000 minimum; $100,000 maximum).
Special Redemption Option (electronic transfer)--to redeem shares
at any time and have the proceeds deposited directly to your bank
checking account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--to purchase Fund shares
at regular intervals directly from your bank checking account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)--to purchase Fund shares
by telephone and pay for them by electronic transfer of funds from
your checking account ($50 minimum; $100,000 maximum).
Automatic Exchange Plan--to automatically redeem a fixed dollar
amount from your Fund account and invest it in another Stein Roe
Fund account on a regular basis ($50 minimum; $100,000 maximum).
Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank checking account ($50 minimum; $100,000 maximum).
Systematic Withdrawals--to have a fixed dollar amount, declining
balance, or fixed percentage of your account redeemed and sent at
regular intervals by check to you or another payee.
NET ASSET VALUE
The Fund's net asset
value is calculated daily
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the
Fund is determined as of the close of trading on the New York
Stock Exchange ("NYSE") (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's assets
and liabilities by the number of shares outstanding. Net asset
value will not be determined on days when the NYSE is closed
unless, in the judgment of the Board of Trustees, the net asset
value of the Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. The
Fund intends to distribute by the end of each calendar year at
least 98% of any net capital gains realized from the sale of
securities during the twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
Dividends and capital
gains will be reinvested
automatically unless you
elect another option
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank checking account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment into
the same Fund account normally occurs one business day after the
record date. Investment of distributions into another Stein Roe
Fund account occurs on the payable date. If you choose to receive
your distributions in cash, your distribution check normally will
be mailed approximately 15 days after the record date. The Trust
reserves the right to reinvest the proceeds and future
distributions in additional Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
INCOME TAXES.
Fund distributions
will be taxable to you
Your distributions will be taxable to you, under income tax law,
whether received in cash or reinvested in additional shares. For
federal income tax purposes, any distribution that is paid in
January but was declared in the prior calendar year is deemed paid
in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gain.
Distributions of net long-term capital gain will be taxable to you
as long-term capital gain regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
may not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, the Fund is treated as a separate
taxable entity distinct from the other series of the Trust.
This discussion of taxation is not intended to be a full
discussion of income tax laws and their effect on shareholders.
You may wish to consult your own tax advisor. The foregoing
information applies to U.S. shareholders. Foreign shareholders
should consult their tax advisors as to the tax consequences of
ownership of Fund shares.
BACKUP WITHHOLDING.
If you fail to provide
a tax identification number,
you will be subject to
backup withholding
The Trust may be required to withhold federal income tax ("backup
withholding") from certain payments to you, generally redemption
proceeds. Backup withholding may be required if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.
These certifications are contained in the Application that you
should complete and return when you open an account. The Fund
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for the Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a credit
on your federal income tax return.
INVESTMENT RETURN
The Fund's performance is
usually quoted as an average
annual total return, which
is a historical figure and
is not intended to be
indicative of future results
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment of dividends and
capital gains), plus or minus the change in the net asset value
per share for a given period. A total return percentage may be
calculated by dividing the value of a share at the end of the
period (including reinvestment of distributions) by the value of
the share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
MANAGEMENT OF THE FUND
TRUSTEES AND ADVISER.
The Board of Trustees
supervises the Fund and
Stein Roe
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and additional
information about the trustees and officers. Stein Roe & Farnham
Incorporated, One South Wacker Drive, Chicago, Illinois 60606, is
responsible for managing the investment portfolio and the business
affairs of the Fund and the Trust, subject to the direction of the
Board. Stein Roe is registered as an investment adviser under the
Investment Advisers Act of 1940.
Stein Roe (and its predecessor) has advised and managed mutual
funds since 1949. Stein Roe is a wholly owned indirect subsidiary
of Liberty Financial Companies, Inc. ("Liberty Financial"), which
in turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
PORTFOLIO MANAGERS.
The Fund's portfolio is
managed by Erik Gustafson and
David Brady
The portfolio managers of the Fund are Erik P. Gustafson and
David P. Brady, who are vice presidents of Stein Roe and the
Trust. Before joining Stein Roe, Mr. Gustafson was an
attorney with Fowler, White, Burnett, Hurley, Banick &
Strickroot from 1989 to 1992. He holds a B.A. from the
University of Virginia (1985) and M.B.A. and J.D. degrees
(1989) from Florida State University. Mr. Brady, who joined
Stein Roe in 1993, was an equity investment analyst with
State Farm Mutual Automobile Insurance Company from 1986 to
1993. A chartered financial analyst, Mr. Brady earned a B.S.
in Finance, graduating Magna Cum Laude, from the University
of Arizona in 1986, and an M.B.A. from the University of
Chicago in 1989. As of December 31, 1995, Messrs. Gustafson
and Brady were responsible for co-managing $554 million and
$42 million in mutual fund assets, respectively.
FEES AND EXPENSES.
Stein Roe receives
fees from the Fund
The Fund's investment advisory agreement with Stein Roe was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee was .75% of the first $250
million of average net assets, .70% of the next $250 million, and
.60% thereafter. The new fee schedule calls for a management fee
of .60% of the first $500 million, .55% of the next $500 million,
and .50% thereafter; and an administrative fee of .20% of the
first $500 million, .15% of the next $500 million, and .125%
thereafter. For the fiscal year ended September 30, 1995, Stein
Roe reimbursed the Fund $322,803, resulting in a net payment by
Stein Roe of $191,821. Please refer to Fee Table for a description
of the expense limitation.
Because of the Fund's
educational objective,
the Fund's expenses may
be higher
Because the Fund also has as an objective being an educational
experience for investors, the Fund's non-advisory expenses may be
higher than other mutual funds due to regular educational and
other reporting to shareholders.
Under a separate agreement with the Trust, Stein Roe provides
certain accounting and bookkeeping services to the Fund,
including computation of its net asset value and calculation of
its net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
Stein Roe places the orders for the purchase and sale of portfolio
securities and options and futures transactions for the Fund. In
doing so, Stein Roe seeks to obtain the best combination of price
and execution, which involves a number of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The Fund's shares are
offered through Liberty
Securities Corporation
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by Stein Roe,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
The Fund is part of a
Massachusetts business trust
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder
shall be deemed to have agreed to be bound by the terms thereof.
The Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust is
also believed to be remote, because it would be limited to claims
to which the disclaimer did not apply and to circumstances in
which the other series was unable to meet its obligations.
<PAGE>
[STEIN ROE FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Total Return Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
P.O. Box 804058
Chicago, Illinois 60680
800-338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
YI296
<PAGE>
STEIN ROE INVESTMENT TRUST
STEIN ROE YOUNG INVESTOR FUND
THE FEBRUARY 1, 1996 DATE OF THIS PROSPECTUS IS NULL AND VOID.
THE NEW DATE OF THIS PROSPECTUS IS JULY 1, 1996
SUPPLEMENT
INTERFUND LENDING PROGRAM. On June 18, 1996, the Fund's
shareholders approved changes in the Fund's investment
restrictions regarding borrowing and lending to permit the Fund to
participate in an interfund lending program with other mutual
funds managed by the Adviser. The fourth paragraph under
Restrictions on the Funds' Investments is revised to read as
follows:
"The Fund may not make loans except that it may (1) purchase
money market instruments and enter into repurchase agreements;
(2) acquire publicly-distributed or privately-placed debt
securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending
program with other Stein Roe Funds. The Fund may not borrow
money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the Fund's aggregate borrowings
(including reverse repurchase agreements) nor the Fund's
aggregate loans at any one time may exceed 33 1/3% of the
value of its total assets."
FINANCIAL HIGHLIGHTS. The per share data (for a share
outstanding throughout the period) contained in the section
Financial Highlights is updated by adding the following unaudited
financial information for the six months ended March 31, 1996:
NET ASSET VALUE, BEGINNING OF PERIOD.................$14.29
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................0.04
Net realized and unrealized gains on investments... 1.96
------
Total from Investment Operations...................2.00
------
DISTRIBUTIONS
Net investment income...............................(0.05)
Net realized capital gains........................ (0.51)
------
Total Distributions............................. (0.56)
------
NET ASSET VALUE, END OF PERIOD.......................$15.73
------
------
Ratio of net expenses to average net assets (a)......*1.10%
Ratio of net investment income to average net
assets (b) .......................................*0.47%
Portfolio turnover rate.................................44%
Average commissions (per share).....................$0.0632
Total return (b).....................................14.39%
Net assets, end of period (000 omitted).............$68,311
_______________
*Annualized.
(a) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Adviser, this ratio would
have been 1.68% for the period ended March 31, 1996.
(b) Computed giving effect to the Adviser's expense limitation
undertaking.
NEW ADDRESS FOR ORDERS. Effective July 5, 1996, orders for
purchases and redemptions of Fund shares should be mailed to
SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [SERVICE MARK]
Program should send orders to SteinRoe Services Inc. at P.O. Box
803938, Chicago, Illinois 60680.
The Statement of Additional Information dated July 1, 1996
and the most recent financial statements may be obtained without
charge by writing to the Secretary of the Trust at One South Wacker
Drive, Chicago, Illinois 60606, or by calling 800-338-2550.
NEW INSTRUCTIONS FOR PURCHASES BY WIRE TRANSFER. Effective
July 5, 1996, wire transfers for the purchase of Fund shares
should be addressed as follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. 14; Stein Roe Young Investor Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Participants in the Stein Roe Counselor [SERVICE MARK]
program should continue to use the instructions in the Prospectus
under How to Purchase Shares--By Wire for wire purchases.
PURCHASE MINIMUMS. The initial purchase minimum to open an
account under an automatic investment plan is $100. The minimum was
due to increase to $500 on July 1, 1996, but the $100 minimum has been
extended until further notice.
PORTFOLIO MANAGER CHANGE. Arthur J. McQueen joined Erik P.
Gustafson and David P. Brady as a co-portfolio manager of Young Investor
Fund in April, 1996. Mr. McQueen earned a B.S. from Villanova
University (1980) and an M.B.A. from the Wharton School of the
University of Pennsylvania (1987). Mr. McQueen is a senior
vice president and senior research analyst with Stein Roe &
Farnham Incorporated, which he joined in 1987. He was previously
employed by Citibank and GTE.
_____________________________
<PAGE>
YOUNG INVESTOR FUND
The Fund's objective is long-term capital appreciation. The Fund
invests in securities of companies that affect the lives of
children or teenagers. The Fund is also intended to be a fun,
educational experience for young investors and their parents.
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST, an open-end management investment
company.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
If you have any questions about new Fund accounts, please call
800-403-KIDS (800-403-5437); for existing accounts, shareholders
should call 800-338-2550.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at the address shown on the back cover or by calling the
Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 1, 1996.
<PAGE>
TABLE OF CONTENTS
Page
Summary .................................2
Fee Table ..............................4
Financial Highlights.....................6
The Fund ................................7
Investment Policies .....................7
Portfolio Investments and Strategies.....8
Investment Restrictions.................10
Risks and Investment Considerations.....11
How to Purchase Shares .................12
By Check ............................13
By Wire .............................13
By Electronic Transfer...............14
By Exchange .........................14
Purchase Price and Effective Date ...14
Conditions of Purchase ..............14
Purchases Through Third Parties......14
How to Redeem Shares ...................15
By Written Request ..................15
By Exchange .........................15
Special Redemption Privileges .......16
General Redemption Policies .........17
Shareholder Services ...................19
Net Asset Value ........................21
Distributions and Income Taxes .........21
Investment Return ......................23
Management of the Fund .................23
Organization and Description of Shares..25
SUMMARY
STEIN ROE YOUNG INVESTOR FUND (the "Fund") is a series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. The Fund is a "no-load" fund. There are no
sales or redemption charges. (See The Fund and Organization and
Description of Shares.) This prospectus is not a solicitation in any
jurisdiction in which the Fund is not registered for sale.
INVESTMENT OBJECTIVES AND POLICIES.
The Fund's investment objective is long-term capital appreciation.
It seeks to achieve its objective by investing primarily in common
stocks and other equity-type securities that Stein Roe believes to
have long-term appreciation potential. The Fund invests primarily
in securities of companies that appeal to or affect the lives of
children or teenagers. It is designed for long-term investors,
particularly children and teenagers.
In addition to the Fund's investment objective and policies, the
Fund also has an educational objective. It seeks to teach
children and teenagers about the Fund, basic economic principles,
and personal finance through a variety of educational materials
prepared and paid for by the Fund.
There can be no guarantee that the Fund will achieve its
investment objective. Please see Investment Policies and
Portfolio Investments and Strategies for further information.
<PAGE>
INVESTMENT RISKS.
The Fund is designed for long-term investors who are willing to
accept the investment risk and volatility of equity-type
securities in general, as well as the specific types of equity
securities emphasized by the Fund. By investing in companies
whose products or services appeal to young investors, the Fund
emphasizes various consumer goods sectors. Since the Fund may
invest in foreign securities, investors should understand and
consider carefully the risks involved in foreign investing.
Investing in foreign securities involves certain considerations
involving both risks and opportunities not typically associated
with investing in U.S. securities. Please see Investment
Policies, Portfolio Investments and Strategies, and Risks and
Investment Considerations for further information.
PURCHASES.
The minimum initial investment for the Fund is $2,500; the minimum
investment for Uniform Gifts/ Transfers to Minors Act accounts is
$1,000. Additional investments must be at least $50. Shares may
be purchased by check, by bank wire, by electronic transfer, or by
exchange from another Stein Roe Fund. For more detailed
information, see How to Purchase Shares.
REDEMPTIONS.
For information on redeeming Fund shares, including the special
redemption privileges, see How to Redeem Shares.
NET ASSET VALUE.
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value is determined as of
the close of trading on the New York Stock Exchange. (For more
detailed information, see Net Asset Value.)
DISTRIBUTIONS.
Dividends are normally declared and paid annually. Distributions
will be reinvested into your Fund account unless you elect to have
them paid in cash, deposited by electronic transfer into your bank
checking account, or invested in another Stein Roe Fund account.
(See Distributions and Income Taxes and Shareholder Services.)
MANAGEMENT AND FEES.
Stein Roe & Farnham Incorporated ("Stein Roe") provides management
and investment advisory services to the Fund. For a description
of Stein Roe and its fees, see Management of the Fund.
If you have any additional questions about the Fund, please feel
free to discuss them with an account representative by calling
800-338-2550.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None*
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after expense
reimbursement; as a percentage of average net assets)
Management and Administrative Fees (after
expense reimbursement) None
12b-1 Fees None
Other Expenses (after expense reimbursement) 1.25%
-----
Total Fund Operating Expenses (after expense
reimbursement) 1.25%
-----
-----
- -----------
*There is a $3.50 charge for wiring redemption proceeds to your bank.
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$13 $40 $69 $151
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year, except that it
has been adjusted to reflect changes in the Fund's transfer agency
services and fees. From time to time, the Adviser may voluntarily
absorb certain expenses of the Fund. Stein Roe has agreed to
voluntarily waive its management fee and absorb the expenses of
the Fund to the extent that such fees and expenses on an
annualized basis exceed 1.25% of its annual average net assets
from February 1, 1996 through January 31, 1997, subject to earlier
termination by the Adviser on 30 days' notice (previously, Stein
Roe had undertaken to reimburse the Fund for expenses in excess of
0.99%). Any such absorption will temporarily lower the Fund's
overall expense ratio and increase its overall return to
investors. Absent the expense undertaking, Management and
Administrative Fees, Other Expenses, and Total Fund Operating
Expenses would have been 0.76%, 2.11%, and 2.87%, respectively.
(Also see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods; that all income
dividends and capital gain distributions are reinvested in
additional Fund shares; and that, for purposes of management fee
breakpoints, net assets remain at the same level as in the most
recently completed fiscal year.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing the Fund's expenses
and in providing a basis for comparison with other mutual funds,
it should not be used for comparison with other investments using
different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis for the period shown and has been audited by
Arthur Andersen LLP, independent public accountants. The
auditors' report was unqualified. The table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
Period Ended Year Ended
Sept. 30, Sept. 30,
1994 (a) 1995
-------------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.24
------ -------
Income from investment operations
Net investment income 0.03 0.06
Net realized and unrealized gains on investments 0.21 4.07
Total from investment operations 0.24 4.13
------ -------
Distributions from net investment income -- (0.08)
------ -------
NET ASSET VALUE, END OF PERIOD $10.24 $14.29
------ -------
------ -------
Ratio of net expenses to average net assets (b) *0.99% 0.99%
Ratio of net investment income to average
net assets (c) *1.07% 0.47%
Portfolio turnover rate **12% 55%
Total return **2.40% 40.58%
Net assets, end of period (000 omitted) $8,176 $31,401
________________________________
*Annualized.
**Not annualized.
(a) From commencement of operations on April 29, 1994.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the investment adviser, this
ratio would have been 4.58% for the period ended September 30,
1994 and 2.87% for the year ended September 30, 1995.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
THE FUND
STEIN ROE YOUNG INVESTOR FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a
portfolio of securities such as common stocks. A mutual fund
allows you to pool your money with that of other investors in
order to obtain professional investment management. Mutual funds
generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping. The Fund does not impose commissions or charges
when shares are purchased or redeemed.
The Fund is a series of the Stein Roe Investment Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated ("Stein Roe") provides investment
advisory, administrative, and bookkeeping and accounting services
to the Fund. Stein Roe also manages and
provides investment advisory services for several other no-load
mutual funds with different investment objectives, including
equity funds, international funds, taxable and tax-exempt bond
funds, and money market funds. To obtain prospectuses and
other information on any of those mutual funds, please call 800-
338-2550.
INVESTMENT POLICIES
The Fund's investment objective is long-term capital appreciation.
It seeks to achieve its objective by investing primarily in common
stocks and other equity-type securities that, in the opinion of
Stein Roe, have long-term appreciation potential.
Under normal circumstances, at least 65% of the Fund's total
assets will be invested in securities of companies that, in the
opinion of Stein Roe, directly or through one or more
subsidiaries, affect the lives of children or teenagers. Such
companies may include companies that produce products or services
that children or teenagers use, are aware of, or could potentially
have an interest in.
Although the Fund invests primarily in common stocks and other
equity-type securities (such as preferred stocks, securities
convertible into or exchangeable for common stocks, and warrants
or rights to purchase common stocks), it may invest up to 35% of
its total assets in debt securities. The Fund may invest in
securities of smaller emerging companies as well as securities of
well-seasoned companies of any size. Smaller companies, however,
involve higher risks in that they typically have limited product
lines, markets, and financial or management resources. In
addition, the securities of smaller companies may trade less
frequently and have greater price fluctuation than larger
companies, particularly those operating in countries with
developing markets. The Fund may also employ investment
techniques described elsewhere in this prospectus. (See Risks and
Investment Considerations and Fees and Expenses.)
In addition to the Fund's investment objective and policies, the
Fund also has an educational objective. The Fund will seek to
educate its shareholders by providing educational materials
regarding personal finance and investing as well as materials on
the Fund and its portfolio holdings.
PORTFOLIO INVESTMENTS AND STRATEGIES
In pursuing its investment objective, the Fund may invest in debt
securities. A debt security is an obligation of a borrower to
make payments of principal and interest to the holder of the
security. To the extent the Fund invests in debt securities, such
holdings will be subject to interest rate risk and credit risk.
Interest rate risk is the risk that the value of a portfolio will
fluctuate in response to changes in interest rates. Generally,
the debt component of a portfolio will tend to decrease in value
when interest rates rise and increase in value when interest rates
fall. Credit risk is the risk that an issuer will be unable to make
principal and interest payments when due. Investments in debt securities
are limited to those that are rated within the four highest grades
(generally referred to as "investment grade") assigned by a nationally
recognized statistical rating organization. Investments in unrated debt
securities are limited to those deemed to be of comparable quality by
Stein Roe. Securities rated within the fourth highest grade may possess
speculative characteristics. If the rating of a security held by the
Fund is lost or reduced below investment grade, the Fund is not required
to dispose of the security--Stein Roe will, however, consider that
fact in determining whether the Fund should continue to hold the
security. When Stein Roe considers a temporary defensive position
advisable, the Fund may invest without limitation in high-quality
fixed income securities, or hold assets in cash or cash
equivalents.
The Fund may invest up to 25% of its total assets in foreign
securities. (See Risks and Investment Considerations.) In
addition to, or in lieu of, such direct investment, the Fund may
construct a synthetic foreign position by (a) purchasing a debt
instrument denominated in one currency, generally U.S. dollars;
and (b) concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar prior to
the settlement date--this risk is in addition to the risk that the
value of the foreign security purchased may decline.
The Fund may make loans of its portfolio securities to broker-
dealers and banks and enter into reverse repurchase agreements
subject to certain restrictions described in the Statement of
Additional Information. The Fund may invest in securities
purchased on a when-issued or delayed-delivery basis. Although
the payment terms of these securities are established at the time
the Fund enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional, exchange-traded and non-exchange-traded
options, futures contracts, futures options, forward contracts,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, or an interest rate.
The Fund does not expect to invest more than 5% of its net assets
in any type of Derivative except for options, futures contracts,
and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on Stein Roe's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund may: (1)
purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes, or other benchmarks. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund foregoes, during the option's
life, the opportunity to profit from increases in market value of
the security covering the call option above the sum of the premium
and the exercise price of the call. There can be no assurance
that a liquid market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
INVESTMENT RESTRICTIONS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S.Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical investment
objective.
The Fund will not invest more than 25% of its total assets (at the
time of investment) in the securities of companies in any one
industry.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements, /1/ provided that
it will not invest more than 5% of its net assets in repurchase
agreements maturing in more than seven days, and any other
illiquid securities. An investment in illiquid securities could
involve relatively greater risks and costs to the Fund.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
The investment restrictions described in the first three paragraphs
of this section are fundamental policies and, as such, can be
changed only with the approval of a "majority of the outstanding
voting securities" as defined in the Investment Company Act of
1940. The investment objective is non-fundamental and, as such,
may be changed by the Board of Trustees without shareholder
approval. Any such change may result in the Fund having an
investment objective different from the objective the shareholder
considered appropriate at the time of investment in the Fund. All
of the investment restrictions are set forth in the Statement of
Additional Information.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund is designed
for long-term investors who desire to participate in the stock
market and places an emphasis on companies that appeal to young
investors. These investors can accept more investment risk and
volatility than the stock market in general but want less
investment risk and volatility than aggressive capital
appreciation funds. Of course, there can be no guarantee that the
Fund will achieve its objective. The Fund is also designed to be
a fun, educational experience for young investors and their
parents.
While the Fund seeks to reduce risk by investing in a diversified
portfolio, diversification does not eliminate all risk. The Fund
will not, however, invest more than 25% of the total value of its
assets (at the time of investment) in the securities of companies
in any one industry. By investing in companies whose products or
services appeal to young investors, the Fund emphasizes various
consumer goods sectors.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. Accordingly, the portfolio
turnover rate may vary significantly from year to year, but is not
expected to exceed 100% under normal market conditions. A high
rate of portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses. (See
Distributions and Income Taxes.) The Fund is not intended to be
an income-producing investment, although it may produce income.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, less market liquidity, more market
volatility, less developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER/FEEDER OPTION.
Rather than investing in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by Stein Roe for
investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by Stein Roe in substantially the same manner as
the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
HOW TO PURCHASE SHARES
You may purchase Fund shares by check, by wire, by electronic
transfer, or by exchange from your account with another Stein Roe
Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
accounts is $1,000; the minimum for accounts established under an
automatic investment plan of at least $50 per month (i.e., Regular
Investments or the Automatic Exchange Plan) is $100 through June
30, 1996, after which time it will be $500; and the minimum per
account for Stein Roe IRAs is $500. The initial purchase minimum
is waived for shareholders who participate in the Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs and for clients of Stein Roe. Subsequent
purchases must be at least $50. (See Shareholder Services.)
BY CHECK.
To make an initial purchase of shares of the Fund by check, please
complete and sign the Application and mail it, together with a
check made payable to Stein Roe Funds, to P.O. Box 804058,
Chicago, Illinois 60680.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $50, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside the United States.
Should an order to purchase shares of the Fund be cancelled
because your check does not clear, you will be responsible for any
resulting loss incurred by the Fund.
BY WIRE.
You also may pay for shares by instructing your bank to wire
federal funds (monies of member banks within the Federal Reserve
System) to the Fund's custodian bank. Your bank may charge you a
fee for sending the wire. If you are opening a new account by
wire transfer, you must first telephone the Trust to request an
account number and furnish your social security or other tax
identification number. Neither the Fund nor the Trust will be
responsible for the consequences of delays, including delays in
the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
State Street Bank and Trust Company
ABA Routing No. 011000028
Boston, Massachusetts
Attention: Custody
Fund No. 7124; Stein Roe Young Investor Fund
Account of (exact name(s) in registration)
Shareholder Account No. ___________
BY ELECTRONIC TRANSFER.
You may also make subsequent investments by an electronic transfer
of funds from your bank checking account. Electronic transfer
allows you to make purchases at your request ("Special
Investments") by calling 800-338-2550 or at pre-scheduled
intervals ("Regular Investments"). (See Shareholder Services.)
Electronic transfer purchases are subject to a $50 minimum and a
$100,000 maximum. You may not open a new account through
electronic transfer. Should an order to purchase shares of the
Fund be cancelled because your electronic transfer does not clear,
you will be responsible for any resulting loss incurred by the
Fund.
BY EXCHANGE.
You may purchase shares by exchange of shares from another Stein
Roe Fund account either by phone (if the Telephone Exchange
Privilege has been established on the account from which the
exchange is being made), by mail, in person, or automatically at
regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information on the Exchange
Privilege under How to Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE.
Each purchase of the Fund's shares is made at the Fund's net asset
value (see Net Asset Value) next determined after receipt of
payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment order
received by telephone on a business day before 2:00 p.m., Central
time, is effective on the next business day.
CONDITIONS OF PURCHASE.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until
accepted and entered on the books of the Fund. Once your purchase
order has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interests of the Trust or of the Fund's shareholders. The Trust
also reserves the right to waive or lower its investment minimums
for any reason.
PURCHASES THROUGH THIRD PARTIES.
You may purchase (or redeem) shares through investment dealers,
banks, or other financial institutions. These institutions may
charge for their services or place limitations on the extent to
which you may use the services offered by the Trust. There are no
charges or limitations imposed by the Trust, other than those
described in this prospectus, if shares are purchased (or
redeemed) directly from the Trust.
Some financial institutions that maintain nominee accounts with
the Fund for their clients for whom they hold Fund shares charge
an annual fee of up to 0.25% of the average net assets held in
such accounts for accounting, servicing, and distribution services
they provide with respect to the underlying Fund shares. Such
fees are paid by Stein Roe.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST.
You may redeem all or a portion of your shares of the Fund by
submitting a written request in "good order" to the Trust at P.O.
Box 804058, Chicago, Illinois 60680. A redemption request will be
considered to have been received in good order if the following
conditions are satisfied:
(1) The request must be in writing, and must indicate the number
of shares or dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The signatures on the written redemption request must be
guaranteed (a signature guarantee is not a notarization, but is a
widely accepted way to protect you and the Fund by verifying your
signature);
(4) The request must include other supporting legal documents as
required from organizations, executors, administrators, trustees,
or others acting on accounts not registered in their names.
BY EXCHANGE.
You may redeem all or any portion of your Fund shares and use the
proceeds to purchase shares of any other Stein Roe Fund offered
for sale in your state if your signed, properly completed
Application is on file.
An exchange transaction is a sale and purchase of shares for
federal income tax purposes and may result in capital gain or
loss. Before exercising the Exchange Privilege, you should obtain
the prospectus for the Stein Roe Fund in which you wish to invest
and read it carefully. The registration of the account to which
you are making an exchange must be exactly the same as that of the
Fund account from which the exchange is made and the amount you
exchange must meet any applicable minimum investment of the Stein
Roe Fund being purchased. An exchange may be made by following
the redemption procedure described above under By Written Request
and indicating the Stein Roe Fund to be purchased--a signature
guarantee normally is not required. (See also the discussion
below of the Telephone Exchange Privilege and Automatic
Exchanges.)
SPECIAL REDEMPTION PRIVILEGES.
The Telephone Exchange Privilege and the Telephone Redemption by
Check Privilege will be established automatically for you when you
open your account unless you decline these Privileges on your
Application. Other Privileges must be
specifically elected. If you do not want the Telephone Exchange
and Redemption Privileges, check the box(es) under the section
"Telephone Redemption Options" when completing your Application.
In addition, a signature guarantee may be required to establish a
Privilege after you open your account. If you establish both the
Telephone Redemption by Wire Privilege and the Electronic Transfer
Privilege, the bank account that you designate for both Privileges
must be the same.
The Telephone Redemption by Check Privilege, Telephone Redemption
by Wire Privilege, and Special Electronic Transfer Redemptions are
not available to redeem shares held by a tax-sheltered retirement
plan sponsored by the Adviser. (See also General Redemption
Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND THE FUND MAY REFUSE REQUESTS FOR
TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-TRIP
BEING THE EXCHANGE OUT OF THE FUND INTO ANOTHER STEIN ROE FUND,
AND THEN BACK TO THE FUND). In addition, the Trust's general
redemption policies apply to redemptions of shares by Telephone
Exchange. (See General Redemption Policies.)
The Trust reserves the right to suspend or terminate, at any time
and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Fund.
THEREFORE, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR
TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS
"MARKET-TIMERS." Moreover, the Trust reserves the right to
suspend, limit, modify, or terminate, at any time and without
prior notice, the Telephone Exchange Privilege in its entirety.
Because such a step would be taken only if the Board of Trustees
believes it would be in the best interests of the Fund, the Trust
expects that it would provide shareholders with prior written
notice of any such action unless the resulting delay in the
suspension, limitation, modification, or termination of the
Telephone Exchange Privilege would adversely affect the Fund. If
the Trust were to suspend, limit, modify, or terminate the
Telephone Exchange Privilege, a shareholder expecting to make a
Telephone Exchange might find that an exchange could not be
processed or that there might be a delay in the implementation of
the exchange. (See How to Redeem Shares--By Exchange.) During
periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Wire Privilege. You may use this Privilege to
redeem shares from your account ($1,000 miminum; $100,000 maximum) by
calling 800-338-2550. The proceeds will be transmitted by wire
to your account at a commercial bank previously designated by you
that is a member of the Federal Reserve System. The fee for
wiring proceeds (currently $3.50 per transaction) will be deducted
from the amount wired.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address.
Electronic Transfer Privilege. You may redeem shares by calling
800-338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a checking account previously
designated by you at a bank that is a member of the Automated
Clearing House. You may also request electronic transfers at
scheduled intervals ("Automatic Redemptions"--see Shareholder
Services). Electronic transfers are subject to a $50 minimum and
a $100,000 maximum. A Special Redemption request received by
telephone after 2:00 p.m., Central time, is deemed received on the
next business day.
GENERAL REDEMPTION POLICIES.
You may not cancel or revoke your redemption order once
instructions have been received and accepted. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. Please telephone
the Trust if you have any questions about requirements for a
redemption before submitting your request. The Trust reserves the
right to require a properly completed Application before making
payment for shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Trust normally intends to pay proceeds of a Telephone Redemption
paid by wire on the next business day. If you attempt to redeem
shares within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
Generally, you may not use the Exchange Privilege or any Special
Redemption Privilege to redeem shares purchased by check (other
than certified or cashiers' checks) or electronic transfer until
15 days after their date of purchase.
The Trust reserves the right at any time without prior notice to
suspend, limit, modify, or terminate any Privilege or its use in
any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Fund employs
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Fund and its
transfer agent to tape-record all instructions to redeem. In addition,
callers are asked to identify the account number and registration, and
may be required to provide other forms of identification. Written
confirmations of transactions are mailed promptly to the registered
address; a legend on the confirmation requests that the shareholder
review the transactions and inform the Fund immediately if there is a
problem. If the Fund does not follow reasonable procedures for
protecting shareholders against loss on telephone transactions, it
may be liable for any losses due to unauthorized or fraudulent
instructions.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and would be allowed 30 days
to increase the account before the redemption is processed.
Shares in any account you maintain with the Fund or any of the
other Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers for the purchase of shares, or any Stein Roe
Fund liability under the Internal Revenue Code provisions on
backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS.
You will receive a confirmation statement reflecting each of your
purchases and redemptions of shares of the Fund. Shares purchased
by reinvestment of dividends, by cross-reinvestment of dividends from
another Fund, or through an automatic investment plan will be
confirmed to you quarterly. The Trust will send you quarterly
materials on the Fund and its portfolio holdings, will send you
semiannual and annual reports, and will provide you annually with
tax information.
FUNDS-ON-CALL [REGISTERED] 24-HOUR INFORMATION SERVICE.
To access the Stein Roe Funds-on-Call [registered] automated
telephone service, just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call
[registered] provides yields, prices, latest dividends, account
balances, last transaction, and other information 24 hours a day,
seven days a week.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE TRANSACTIONS.
If you have established the Funds-on-Call [registered] transaction
privilege (Funds-on-Call [registered] Application will be
required), you may initiate Special Investments and Redemptions,
Telephone Exchanges, and Telephone Redemptions by Check 24 hours a day,
seven days a week by calling 800-338-2550 on a touch-tone telephone.
These transactions are subject to the terms and conditions of the
individual privileges. (See How to Purchase Shares and How to Redeem
Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM.
The Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] programs are professional investment
advisory services available to shareholders. These programs are
designed to provide investment guidance in helping investors to
select a portfolio of Stein Roe Funds. The Stein Roe Counselor
Preferred [SERVICE MARK] program, which automatically adjusts
client portfolios among the Stein Roe Funds, has a fee of up to 1%
of assets.
TAX-SHELTERED RETIREMENT PLAN.
Booklets describing the Individual Retirement Account ("IRA")
program and special forms necessary for establishing it are
available on request. IRAs are available for employed persons and
their non-employed spouses. You may use all of the Stein Roe
Funds, except those investing primarily in tax-exempt securities,
in the plan. Please read the prospectus for each fund in which
you plan to invest before making your investment.
SPECIAL SERVICES.
The following special services are available to shareholders.
Please call 800-338-2550 or write the Trust for additional
information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank checking account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your Application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--to redeem shares from your
account by phone and have the proceeds transmitted by wire to your
checking account ($1,000 minimum; $100,000 maximum).
Special Redemption Option (electronic transfer)--to redeem shares
at any time and have the proceeds deposited directly to your bank
checking account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--to purchase Fund shares
at regular intervals directly from your bank checking account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)--to purchase Fund shares
by telephone and pay for them by electronic transfer of funds from
your checking account ($50 minimum; $100,000 maximum).
Automatic Exchange Plan--to automatically redeem a fixed dollar
amount from your Fund account and invest it in another Stein Roe
Fund account on a regular basis ($50 minimum; $100,000 maximum).
Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank checking account ($50 minimum; $100,000 maximum).
Systematic Withdrawals--to have a fixed dollar amount, declining
balance, or fixed percentage of your account redeemed and sent at
regular intervals by check to you or another payee.
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the
Fund is determined as of the close of trading on the New York
Stock Exchange ("NYSE") (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's assets
and liabilities by the number of shares outstanding. Net asset
value will not be determined on days when the NYSE is closed
unless, in the judgment of the Board of Trustees, the net asset
value of the Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. The
Fund intends to distribute by the end of each calendar year at
least 98% of any net capital gains realized from the sale of
securities during the twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank checking account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment into
the same Fund account normally occurs one business day after the
record date. Investment of distributions into another Stein Roe
Fund account occurs on the payable date. If you choose to receive
your distributions in cash, your distribution check normally will
be mailed approximately 15 days after the record date. The Trust
reserves the right to reinvest the proceeds and future
distributions in additional Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
INCOME TAXES.
Your distributions will be taxable to you, under income tax law,
whether received in cash or reinvested in additional shares. For
federal income tax purposes, any distribution that is paid in
January but was declared in the prior calendar year is deemed paid
in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gain.
Distributions of net long-term capital gain will be taxable to you
as long-term capital gain regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
may not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, the Fund is treated as a separate
taxable entity distinct from the other series of the Trust.
This discussion of taxation is not intended to be a full
discussion of income tax laws and their effect on shareholders.
You may wish to consult your own tax advisor. The foregoing
information applies to U.S. shareholders. Foreign shareholders
should consult their tax advisors as to the tax consequences of
ownership of Fund shares.
BACKUP WITHHOLDING.
The Trust may be required to withhold federal income tax ("backup
withholding") from certain payments to you, generally redemption
proceeds. Backup withholding may be required if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.
These certifications are contained in the Application that you
should complete and return when you open an account. The Fund
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for the Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a credit
on your federal income tax return.
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment of dividends and
capital gains), plus or minus the change in the net asset value
per share for a given period. A total return percentage may be
calculated by dividing the value of a share at the end of the
period (including reinvestment of distributions) by the value of
the share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
MANAGEMENT OF THE FUND
TRUSTEES AND ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and additional
information about the trustees and officers. Stein Roe & Farnham
Incorporated, One South Wacker Drive, Chicago, Illinois 60606, is
responsible for managing the investment portfolio and the business
affairs of the Fund and the Trust, subject to the direction of the
Board. Stein Roe is registered as an investment adviser under the
Investment Advisers Act of 1940.
Stein Roe (and its predecessor) has advised and managed mutual
funds since 1949. Stein Roe is a wholly owned indirect subsidiary
of Liberty Financial Companies, Inc. ("Liberty Financial"), which
in turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
PORTFOLIO MANAGERS.
The portfolio managers of the Fund are Erik P. Gustafson and
David P. Brady, who are vice presidents of Stein Roe and the
Trust. Before joining Stein Roe, Mr. Gustafson was an
attorney with Fowler, White, Burnett, Hurley, Banick &
Strickroot from 1989 to 1992. He holds a B.A. from the
University of Virginia (1985) and M.B.A. and J.D. degrees
(1989) from Florida State University. Mr. Brady, who joined
Stein Roe in 1993, was an equity investment analyst with
State Farm Mutual Automobile Insurance Company from 1986 to
1993. A chartered financial analyst, Mr. Brady earned a B.S.
in Finance, graduating Magna Cum Laude, from the University
of Arizona in 1986, and an M.B.A. from the University of
Chicago in 1989. As of December 31, 1995, Messrs. Gustafson
and Brady were responsible for co-managing $554 million and
$42 million in mutual fund assets, respectively.
FEES AND EXPENSES.
The Fund's investment advisory agreement with Stein Roe was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee was .75% of the first $250
million of average net assets, .70% of the next $250 million, and
.60% thereafter. The new fee schedule calls for a management fee
of .60% of the first $500 million, .55% of the next $500 million,
and .50% thereafter; and an administrative fee of .20% of the
first $500 million, .15% of the next $500 million, and .125%
thereafter. For the fiscal year ended September 30, 1995, Stein
Roe reimbursed the Fund $322,803, resulting in a net payment by
Stein Roe of $191,821. Please refer to Fee Table for a description
of the expense limitation.
Because the Fund also has as an objective being an educational
experience for investors, the Fund's non-advisory expenses may be
higher than other mutual funds due to regular educational and
other reporting to shareholders.
Under a separate agreement with the Trust, Stein Roe provides
certain accounting and bookkeeping services to the Fund,
including computation of its net asset value and calculation of
its net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
Stein Roe places the orders for the purchase and sale of portfolio
securities and options and futures transactions for the Fund. In
doing so, Stein Roe seeks to obtain the best combination of price
and execution, which involves a number of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by Stein Roe,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder
shall be deemed to have agreed to be bound by the terms thereof.
The Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust is
also believed to be remote, because it would be limited to claims
to which the disclaimer did not apply and to circumstances in
which the other series was unable to meet its obligations.
<PAGE>
[STEIN ROE FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Total Return Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
P.O. Box 804058
Chicago, Illinois 60680
800-338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
YI296
<PAGE>
STEIN ROE INVESTMENT TRUST
STEIN ROE GROWTH & INCOME FUND
THE FEBRUARY 1, 1996 DATE OF THIS DEFINED CONTRIBUTION PLANS
PROSPECTUS IS NULL AND VOID. THE NEW DATE OF THIS PROSPECTUS IS
JULY 1, 1996
SUPPLEMENT
INTERFUND LENDING PROGRAM. On June 18, 1996, the Fund's
shareholders approved changes in the Fund's investment
restrictions regarding borrowing and lending to permit the Fund to
participate in an interfund lending program with other mutual
funds managed by the Adviser. The third paragraph under
Restrictions on the Fund's Investments (page 6 of this Prospectus)
is revised to read as follows:
"The Fund may not make loans except that it may (1) purchase
money market instruments and enter into repurchase agreements;
(2) acquire publicly-distributed or privately-placed debt
securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending
program with other Stein Roe Funds. The Fund may not borrow
money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the Fund's aggregate borrowings
(including reverse repurchase agreements) nor the Fund's
aggregate loans at any one time may exceed 33 1/3% of the
value of its total assets."
PORTFOLIO MANAGER CHANGES. Robert A. Christensen, co-manager
of the portfolio of Growth & Income Fund, retired from Stein Roe &
Farnham Incorporated (the "Adviser") on March 31, 1996. Daniel K.
Cantor assumed sole management responsibility for the Fund at that
time. Jeffrey C. Kinzel has been associate portfolio manager
since April, 1996. Mr. Kinzel received a B.A. from Northwestern
University (1979), a J.D. from the University of Michigan Law
School (1983), and an M.B.A. from the Wharton School of the
University of Pennsylvania (1991). Mr. Kinzel is a vice president
and intermediate research analyst with the Adviser. Before
joining the Adviser in 1991 as an equity research analyst, Mr.
Kinzel was employed by Butler and Binion; Miller, Canfield,
Paddock and Stone; and 1838 Investment Advisers. Please refer to
page 9 of this Prospectus for biographical information on Mr.
Cantor.
SHORT SALES AGAINST THE BOX. The Fund may sell short
securities the Fund owns or has the right to acquire without
further consideration, a technique called selling short "against
the box." Short sales against the box may protect the Fund
against the risk of losses in the value of its portfolio
securities because any unrealized losses with respect to such
securities should be wholly or partly offset by a corresponding
gain in the short position. However, any potential gains in such
securities should be wholly or partially offset by a corresponding
loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or
otherwise, the Adviser does not want to sell the security. For a
more complete explanation, please refer to the Statement of
Additional Information.
ADDRESS CHANGE. The Statement of Additional Information
dated July 1, 1996 and the Fund's most recent financial statements
may be obtained without charge by writing to the Secretary of the
Trust at Suite 3200, One South Wacker Drive, Chicago, Illinois 60680,
or by calling 800-338-2550.
FINANCIAL HIGHLIGHTS. The per share data (for a share
outstanding throughout the period) contained in the section
Financial Highlights (page 3 of this Prospectus) is updated by
adding the following unaudited financial information for the six
months ended March 31, 1996:
NET ASSET VALUE, BEGINNING OF PERIOD.................$16.65
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income...............................0.14
Net realized and unrealized gains on investments . 1.90
------
Total from investment operations................ 2.04
------
DISTRIBUTIONS
Net investment income..............................(0.22)
Net realized capital gains....................... (1.43)
------
Total distributions............................ (1.65)
------
NET ASSET VALUE, END OF PERIOD.......................$17.04
------
------
Ratio of net expenses to average net assets..........*1.16%
Ratio of net investment income to average net assets.*1.68%
Portfolio turnover rate..................................9%
Average commissions (per share).....................$0.0718
Total return.........................................13.08%
Net assets, end of period (000 omitted)............$166,138
_______________
*Annualized.
____________________________
<PAGE>
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE GROWTH & INCOME FUND
(FORMERLY NAMED STEINROE PRIME EQUITIES)
The Fund seeks to provide both growth of capital and current
income.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130. The Statement of
Additional Information contains information relating to other
series of the Stein Roe Investment Trust that may not be
available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...4
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 5
Risks and Investment Considerations.. . 6
How to Purchase Shares.............. ...7
How to Redeem Shares .................. 7
Net Asset Value ...................... .7
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................9
Organization and Description of Shares.10
For More Information ..................10
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administrative Fees 0.75%
12b-1 Fees None
Other Expenses 0.40%
-----
Total Fund Operating Expenses 1.15%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end
of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$12 $37 $63 $140
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in the Fund. The
Fund's transfer agency fees were changed effective May 1,
1995, and changes in management and administrative fees
became effective on September 1, 1995. The above table
illustrates expenses that would have been borne by investors
in the last fiscal year assuming that the fee changes had
been in effect for the entire year. (Also see Management of
the Fund--Fees and Expenses.) For purposes of the Example
above, the figures assume that the percentage amounts listed
for the Fund under Annual Fund Operating Expenses remain the
same in each of the periods; that all income dividends and
capital gain distributions are reinvested in additional Fund
shares; and that, for purposes of management fee breakpoints,
the Fund's net assets remain at the same level as in the most
recently completed fiscal year. The figures in the Example
are not necessarily indicative of past or future expenses,
and actual expenses may be greater or less than those shown.
Although information such as that shown in the Example and
Fee Table is useful in reviewing the Fund's expenses and in
providing a basis for comparison with other mutual funds, it
should not be used for comparison with other investments
using different assumptions or time periods. These examples
do not reflect any charges or expenses related to your
employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the periods shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
<TABLE>
<CAPTION>
Period Ended
Sept. 30, Years Ended September 30,
1987 (a) 1988 1989 1990 1991 1992 1993 1994 1995
------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.17 0.22 0.26 0.26 0.19 0.17 0.18 0.34
Net realized and
unrealized gains
(losses) on investments 0.47 (1.64) 2.46 (0.85) 2.17 1.49 2.16 0.40 2.56
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.52 (1.47) 2.68 (0.59) 2.43 1.68 2.33 0.58 2.90
------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.03) (0.14) (0.22) (0.26) (0.29) (0.18) (0.16) (0.16) (0.20)
Net realized capital
gains -- -- -- -- (0.36) (0.35) (0.76) (0.71) (0.59)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.03) (0.14) (0.22) (0.26) (0.65) (0.53) (0.92) (0.87) (0.79)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of net expenses
to average net
assets (b) *1.91% 1.47% 1.24% 1.08% 1.00% 0.97% 0.88% 0.90% 0.96%
Ratio of net investment
income to average net
assets (c) *1.43% 2.03% 2.28% 2.40% 2.27% 1.46% 1.23% 1.18% 1.78%
Portfolio turnover rate 32% 105% 63% 51% 48% 40% 50% 85% 70%
Total return 5.20% (13.90%) 30.63% (5.25%) 24.12% 14.00% 17.98% 4.03% 21.12%
Net assets, end of
period (000 omitted) $22,863 $23,002 $32,562 $43,446 $54,820 $70,724 $100,365 $129,680 $139,539
</TABLE>
*Annualized.
(a)From the commencement of operations on March 23, 1987.
(b)If the Fund had paid all of its expenses and there had
been no reimbursement by the Adviser, this ratio would
have been 2.49% for the period ended September 30, 1987
and 1.09% for the year ended September 30, 1990.
(c)Computed giving effect to the Adviser's expense limitation
undertaking.
__________________________
THE FUND
STEIN ROE GROWTH & INCOME FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own
shares to investors and use the money they receive to invest
in a portfolio of securities such as common stocks. A mutual
fund allows you to pool your money with that of other
investors in order to obtain professional investment
management. Mutual funds generally make it possible for you
to obtain greater diversification of your investments and
simplify your recordkeeping. The Fund does not impose
commissions or charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including equity funds, international funds,
taxable and tax-exempt bond funds, and money market funds.
To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call
800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is to provide both growth of
capital and current income. It is designed for investors
seeking a diversified portfolio of securities that offers the
opportunity for long-term growth of capital while also
providing a steady stream of income.
In seeking to meet this objective, the Fund invests primarily
in well-established companies whose common stocks are
believed to have both the potential to appreciate in value
and to pay dividends to shareholders.
Although it may invest in a broad range of securities
(including common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks, and
warrants or rights to purchase common stocks), normally the
Fund will emphasize investments in equity securities of
companies having market capitalizations in excess of $1
billion. Securities of these well-established companies are
believed to be generally less volatile than those of
companies with smaller capitalizations because companies with
larger capitalizations tend to have experienced management;
broad, highly diversified product lines; deep resources; and
easy access to credit.
Further information on portfolio investments and strategies
may be found under Portfolio Investments and Strategies in
this prospectus and in the Statement of Additional
Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in
debt securities of corporate and governmental issuers.
Investment in debt securities is limited to those that are
rated within the four highest grades (generally referred to
as investment grade). Securities in the fourth highest grade
may possess speculative characteristics, and changes in
economic conditions are more likely to affect the issuer's
capacity to pay interest and repay principal. If the rating
of a security held by the Fund is lost or reduced below
investment grade, the Fund is not required to dispose of the
security--the Adviser will, however, consider that fact in
determining whether the Fund should continue to hold the
security. When the Adviser deems a temporary defensive
position advisable, the Fund may invest, without limitation,
in high-quality fixed income securities, or hold assets in
cash or cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a
U.S. person, the Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) The Fund may invest in
sponsored and unsponsored ADRs. In addition to, or in lieu
of, such direct investment, the Fund may construct a
synthetic foreign position by (a) purchasing a debt
instrument denominated in one currency, generally U.S.
dollars; and (b) concurrently entering into a forward
contract to deliver a corresponding amount of that currency
in exchange for a different currency on a future date and at
a specified rate of exchange. Because of the availability of
a variety of highly liquid U.S. dollar debt instruments, a
synthetic foreign position utilizing such U.S. dollar
instruments may offer greater liquidity than direct
investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund
may contract to purchase an amount of foreign currency
sufficient to pay the purchase price of the securities at the
settlement date. Such a contract involves the risk that the
value of the foreign currency may decline relative to the
value of the dollar prior to the settlement date--this risk
is in addition to the risk that the value of the foreign
security purchased may decline. The Fund also may enter into
foreign currency contracts as a hedging technique to limit or
reduce exposure to currency fluctuations. In addition, the
Fund may use options and futures contracts, as described
below, to limit or reduce exposure to currency fluctuations.
As of September 30, 1995, the Fund's holdings of foreign
companies, as a percentage of net assets, were 4.4% (1.5% in
foreign securities and 2.9% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information.
PORTFOLIO TURNOVER
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of
time portfolio securities must be held. The turnover rate
may vary significantly from year to year. A high rate of
portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses.
(See Distributions and Income Taxes and Management of the
Fund.)
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized
by underlying pools of mortgages or other receivables,
floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived"
from the performance of an underlying asset or a "benchmark"
such as a security index, an interest rate, or a currency.
The Fund does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes or other benchmarks.
The Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require
low margin deposits, the use of futures contracts involves a
high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements,/1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- -----------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- ---------------
The policies summarized in the first three paragraphs under
this section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as
such, can be changed only with the approval of a "majority of
the outstanding voting securities" of the Fund as defined in
the Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is
designed for long-term investors who desire to participate in
the stock market with moderate investment risk while seeking
to limit market volatility. The Fund usually allocates its
investments among a number of different industries rather
than concentrating in a particular industry or group of
industries. It may, however, under abnormal circumstances,
invest up to 25% of net assets in a particular industry or
group of industries. There can be no guarantee that the Fund
will achieve its objective.
Investment in foreign securities may represent a greater
degree of risk (including risk related to exchange rate
fluctuations, tax provisions, exchange and currency controls,
and expropriation of assets) than investment in securities of
domestic issuers. Other risks of foreign investing include
less complete financial information on issuers, less market
liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition
of exchange controls and withholding taxes on dividends, and
seizure or nationalization of investments owned by non-
residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's
assets and liabilities by the number of shares outstanding.
Net asset value will not be determined on days when the
Exchange is closed unless, in the judgment of the Board of
Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
NASDAQ is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation.
Long-term straight-debt obligations are valued at a fair
value using a procedure determined in good faith by the Board
of Trustees. Pricing services approved by the Board provide
valuations (some of which may be "readily available market
quotations"). These valuations are reviewed by the Adviser.
If the Adviser believes that a valuation received from the
service does not represent a fair value, it values the
obligation using a method that the Board believes represents
fair value. The Board may approve the use of other pricing
services and any pricing service used may employ electronic
data processing techniques, including a so-called "matrix"
system, to determine valuations. Securities convertible into
stocks are valued at the latest valuation from a principal
market maker. Other assets and securities are valued by a
method that the Board believes represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid each calendar
quarter. However, because the Fund is required to distribute
at least 98% of its net investment income by the end of the
calendar year, an additional dividend may be declared near
year end. The Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized
from the sale of securities during the twelve-month period
ended October 31 in that year. The Fund intends to
distribute any undistributed net investment income and net
realized capital gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and other
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund's investment portfolio and the business affairs of
the Fund and the Trust, subject to the direction of the Board
of Trustees. The Adviser is registered as an investment
adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Daniel K. Cantor and Robert A. Christensen have been co-
portfolio managers of the Fund since 1995 and 1994,
respectively. Mr. Cantor is a senior vice president of the
Adviser, which he joined in 1985. A chartered financial
analyst, he received a B.A. degree from the University of
Rochester in 1981 and an M.B.A. from the Wharton School of
the University of Pennsylvania in 1985. Mr. Christensen is a
vice-president of the Trust and a senior vice president of
the Adviser, and has been associated with the Adviser since
1962. A chartered investment counselor, he received his B.A.
degree from Vanderbilt University in 1955 and M.B.A. from
Harvard University in 1962. As of December 31, 1995, Messrs.
Cantor and Christensen were responsible for managing $152
million and $872 in mutual fund assets, respectively.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee, based on average net
assets, was .75% of the first $250 million, .70% of the next
$250 million, and .60% thereafter. The new contracts call
for a monthly management fee based on an annual rate of .60%
of the first $500 million, .55% of the next $500 million, and
.50% thereafter; and a monthly administrative fee based on an
annual rate of .15% of the first $500 million, .125% of the
next $500 million, and .10% thereafter. For the year ended
September 30, 1995, the fees for the Fund amounted to .60% of
average net assets.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular Fund shall
look only to the assets of the Trust or of the respective
Fund for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on
account of unsatisfied liability of another Fund of the Trust
is also believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to
circumstances in which the other Fund was unable to meet its
obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
______________________
<PAGE>
STEIN ROE INVESTMENT TRUST
STEIN ROE INTERNATIONAL FUND
THE FEBRUARY 1, 1996 DATE OF THIS DEFINED CONTRIBUTION PLANS
PROSPECTUS IS NULL AND VOID. THE NEW DATE OF THIS PROSPECTUS IS
JULY 1, 1996
SUPPLEMENT
NEW AGREEMENTS. On July 1, 1996, the investment advisory
agreement with Stein Roe & Farnham Incorporated (the "Adviser")
relating to the Fund was replaced with an administrative agreement
and a management agreement. The new fee schedule (which does not
result in a fee increase) calls for a management fee at an annual
rate of .85% of average daily net assets and an administrative fee
of .15%, for a total annual fee of 1% of average net assets.
INTERFUND LENDING PROGRAM. On June 18, 1996, the Fund's
shareholders approved changes in the Fund's investment
restrictions regarding borrowing and lending to permit the Fund to
participate in an interfund lending program with other mutual
funds managed by the Adviser. The third paragraph under
Restrictions on the Fund's Investments (page 6 of the Prospectus)
is revised to read as follows:
"The Fund may not make loans except that it may (1) purchase
money market instruments and enter into repurchase agreements;
(2) acquire publicly-distributed or privately-placed debt
securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending
program with other Stein Roe Funds. The Fund may not borrow
money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the Fund's aggregate borrowings
(including reverse repurchase agreements) nor the Fund's
aggregate loans at any one time may exceed 33 1/3% of the
value of its total assets."
ADDRESS CHANGE. The Statement of Additional Information
dated July 1, 1996 and the Fund's most recent financial statements
may be obtained without charge by writing to the Secretary of the
Trust at Suite 3200, One South Wacker Drive, Chicago, Illinois 60606,
or by calling 800-338-2550.
FINANCIAL HIGHLIGHTS. The per share data (for a share
outstanding throughout the period) contained in the section
Financial Highlights (page 3 of the Prospectus) is updated by
adding the following unaudited financial information for the six
months ended March 31, 1996:
NET ASSET VALUE, BEGINNING OF PERIOD...................$10.25
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income..................................0.01
Net realized and unrealized gains on investments
and foreign currency transactions................. 0.41
------
Total from investment operations.................. 0.42
------
DISTRIBUTIONS
Net investment income.................................(0.12)
Net realized capital gains......................... --
------
Total distributions............................... (0.12)
------
NET ASSET VALUE, END OF PERIOD.........................$10.55
------
------
Ratio of net expenses to average net assets............*1.55%
Ratio of net investment income to average net assets ..*0.35%
Portfolio turnover rate...................................32%
Average commissions (per share).......................$0.0090
Total return ...........................................4.19%
Net assets, end of period (000 omitted)..............$113,890
_______________
*Annualized.
__________________________
<PAGE>
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE INTERNATIONAL FUND
The Fund seeks long-term growth of capital by investing in a
diversified portfolio of foreign securities.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...3
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 6
Risks and Investment Considerations.. . 7
How to Purchase Shares.............. ...8
How to Redeem Shares .................. 8
Net Asset Value ...................... .9
Distributions and Income Taxes....... ..9
Investment Return................... ..10
Management of the Fund.................10
Organization and Description of Shares.11
For More Information ..................12
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administrative Fees 1.00%
12b-1 Fees None
Other Expenses 0.65%
-----
Total Fund Operating Expenses 1.65%
-----
-----
EXAMPLE. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; and (2) redemption
at the end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$17 $52 $90 $195
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in the Fund. The
information in the table is based upon actual expenses
incurred in the last fiscal year, except that it has been
adjusted to reflect changes in the Fund's transfer agency
services and fees. From time to time, the Adviser may
voluntarily absorb certain expenses of the Fund. The Adviser
has agreed to voluntarily waive its management fee and absorb
the expenses of the Fund to the extent that such fees and
expenses on an annualized basis exceed 1.65% of its annual
average net assets from May 1, 1995 through January 31, 1997,
subject to earlier termination by the Adviser on 30 days'
notice. Any such absorption will temporarily lower the
Fund's overall expense ratio and increase its overall return
to investors. The Fund's expenses were not limited during
the period since they did not exceed the limitation. (Also
see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that
the percentage amounts listed for the Fund under Annual Fund
Operating Expenses remain the same in each of the periods and
that all income dividends and capital gain distributions are
reinvested in additional Fund shares. The figures in the
Example are not necessarily indicative of past or future
expenses, and actual expenses may be greater or less than
those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing the Fund's
expenses and in providing a basis for comparison with other
mutual funds, it should not be used for comparison with other
investments using different assumptions or time periods. The
example does not reflect any charges or expenses related to
your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the period shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
Period Ended Year Ended
Sept. 30, Sept. 30,
1994 (a) 1995
------------ ---------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.61
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.12
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions 0.58 (0.26)
------ ------
Total from investment operations 0.61 (0.14)
------ ------
DISTRIBUTIONS
Net investment income -- (0.05)
Net realized capital gains -- (0.17)
------ ------
Total distributions -- (0.22)
------ ------
NET ASSET VALUE, END OF PERIOD $10.61 $10.25
------ ------
------ ------
Ratio of net expenses to average net assets *1.61% 1.59%
Ratio of net investment income to average
net assets *0.61% 1.41%
Portfolio turnover rate 48% 59%
Total return 6.10% (1.28%)
Net assets, end of period (000 omitted) $74,817 $83,020
- -----------
*Annualized.
(a) From commencement of operations on March 1, 1994.
__________________________
THE FUND
STEIN ROE INTERNATIONAL FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own
shares to investors and use the money they receive to invest
in a portfolio of securities such as common stocks. A mutual
fund allows you to pool your money with that of other
investors in order to obtain professional investment
management. Mutual funds generally make it possible for you
to obtain greater diversification of your investments and
simplify your recordkeeping. The Fund does not impose
commissions or charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages
and provides investment advisory services for several other
no-load mutual funds with different investment objectives,
including equity funds, taxable and tax-exempt bond funds,
and money market funds. To obtain prospectuses and other
information on opening a regular account in any of these
mutual funds, please call 800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund invests as described below. Further information on
portfolio investments and strategies may be found under
Portfolio Investments and Strategies in this prospectus and
in the Statement of Additional Information.
The Fund's investment objective is to seek long-term growth
of capital by investing primarily in a diversified portfolio
of foreign securities. Current income is not a primary
factor in the selection of portfolio securities. The Fund
invests primarily in common stocks and other equity-type
securities (such as preferred stocks, securities convertible
or exchangeable for common stocks, and warrants or rights to
purchase common stocks). The Fund may invest in securities
of smaller emerging companies as well as securities of well-
seasoned companies of any size. Smaller companies, however,
involve higher risks in that they typically have limited
product lines, markets, and financial or management
resources. In addition, the securities of smaller companies
may trade less frequently and have greater price fluctuation
than larger companies, particularly those operating in
countries with developing markets.
The Fund diversifies its investments among several countries
and does not concentrate investments in any particular
industry. In pursuing its objective, the Fund varies the
geographic allocation and types of securities in which it
invests based on the Adviser's continuing evaluation of
economic, market, and political trends throughout the world.
While the Fund has not established limits on geographic asset
distribution, it ordinarily invests in the securities markets
of at least three countries outside the United States,
including but not limited to Western European countries (such
as Belgium, France, Germany, Ireland, Italy, The Netherlands,
the countries of Scandinavia, Spain, Switzerland, and the
United Kingdom); countries in the Pacific Basin (such as
Australia, Hong Kong, Japan, Malaysia, the Philippines,
Singapore, and Thailand); and countries in the Americas (such
as Argentina, Brazil, Chile, and Mexico).
Under normal market conditions, the Fund will invest at least
65% of its total assets (taken at market value) in foreign
securities. If, however, investments in foreign securities
appear to be relatively unattractive in the judgment of the
Adviser because of current or anticipated adverse political
or economic conditions, the Fund may hold cash or invest any
portion of its assets in securities of the U.S. Government
and equity and debt securities of U.S. companies, as a
temporary defensive strategy. To meet liquidity needs, the
Fund may also hold cash in domestic and foreign currencies
and invest in domestic and foreign money market securities
(including repurchase agreements and foreign money market
positions).
In the past, the U.S. Government has from time to time
imposed restrictions, through taxation and otherwise, on
foreign investments by U.S. investors such as the Fund. If
such restrictions should be reinstated, it might become
necessary for the Fund to invest all or substantially all of
its assets in U.S. securities. In such an event, the Fund
would review its investment objective and policies to
determine whether changes are appropriate.
The Fund may purchase foreign securities in the form of
American Depositary Receipts (ADRs), European Depositary
Receipts (EDRs), or other securities representing underlying
shares of foreign issuers. The Fund may invest in sponsored
or unsponsored ADRs. (For a description of ADRs and EDRs,
see the Statement of Additional Information.)
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, forward contracts,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument
or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index,
an interest rate, or a currency. The Fund does not expect to
invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, futures
options, and forward contracts.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in currency exchange rates, security
prices, interest rates and other market factors affecting the
Derivative itself or the value of the underlying asset or
benchmark. In addition, correlations in the performance of
an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-
counter Derivatives may not be as well regulated and may be
less marketable than exchange-traded Derivatives. For
additional information on Derivatives, please refer to the
Statement of Additional Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes, or other
benchmarks. The Fund may write a call or put option only if
the option is covered. As the writer of a covered call
option, the Fund foregoes, during the option's life, the
opportunity to profit from increases in market value of the
security covering the call option above the sum of the
premium and the exercise price of the call. There can be no
assurance that a liquid market will exist when the Fund seeks
to close out a position. In addition, because futures
positions may require low margin deposits, the use of futures
contracts involves a high degree of leverage and may result
in losses in excess of the amount of the margin deposit.
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest up
to 35% of its total assets in debt securities. Investments
in debt securities are limited to those that are rated within
the four highest grades (generally referred to as "investment
grade") assigned by a nationally recognized statistical
rating organization. Investments in unrated debt securities
are limited to those deemed to be of comparable quality by
the Adviser. Securities in the fourth highest grade may
possess speculative characteristics. If the rating of a
security held by the Fund is lost or reduced below investment
grade, the Fund is not required to dispose of the security--
the Adviser will, however, consider that fact in determining
whether the Fund should continue to hold the security.
SETTLEMENT TRANSACTIONS.
When the Fund enters into a contract for the purchase or
sale of a foreign portfolio security, it usually is required
to settle the purchase transaction in the relevant foreign
currency or receive the proceeds of the sale in that
currency. In either event, the Fund is obliged to acquire or
dispose of an appropriate amount of foreign currency by
selling or buying an equivalent amount of U.S. dollars. At
or near the time of the purchase or sale of the foreign
portfolio security, the Fund may wish to lock in the U.S.
dollar value of a transaction at the exchange rate or rates
then prevailing between the U.S. dollar and the currency in
which the security is denominated. Known as "transaction
hedging," this may be accomplished by purchasing or selling
such foreign securities on a "spot," or cash, basis.
Transaction hedging also may be accomplished on a forward
basis, whereby the Fund purchases or sells a specific amount
of foreign currency, at a price set at the time of the
contract, for receipt or delivery at either a specified date
or at any time within a specified time period. In so doing,
the Fund will attempt to insulate itself against possible
losses and gains resulting from a change in the relationship
between the U.S. dollar and the foreign currency during the
period between the date the security is purchased or sold and
the date on which payment is made or received. Similar
transactions may be entered into by using other currencies if
the Fund seeks to move investments denominated in one
currency to investments denominated in another.
CURRENCY HEDGING.
Most of the Fund's portfolio will be invested in foreign
securities. As a result, in addition to the risk of change
in the market value of portfolio securities, the value of the
portfolio in U.S. dollars is subject to fluctuations in the
exchange rate between the foreign currencies and the U.S.
dollar. When, in the opinion of the Adviser, it is desirable
to limit or reduce exposure in a foreign currency to moderate
potential changes in the U.S. dollar value of the portfolio,
the Fund may enter into a forward currency exchange contract
to sell or buy such foreign currency (or another foreign
currency that acts as a proxy for that currency)--through the
contract, the U.S. dollar value of certain underlying foreign
portfolio securities can be approximately matched by an
equivalent U.S. dollar liability. This technique is known as
"currency hedging." By locking in a rate of exchange,
currency hedging is intended to moderate or reduce the risk
of change in the U.S. dollar value of the Fund's portfolio
only during the period of the forward contract. Forward
contracts usually are entered into with banks and broker-
dealers; are not exchange traded; and while they are usually
less than one year, may be renewed. A default on the
contract would deprive the Fund of unrealized profits or
force the Fund to cover its commitments for purchase or sale
of currency, if any, at the current market price.
Neither type of foreign currency transaction will eliminate
fluctuations in the prices of the Fund's portfolio securities
or prevent loss if the price of such securities should
decline. In addition, such forward currency exchange
contracts will diminish the benefit of the appreciation in
the U.S. dollar value of that foreign currency. (For further
information on forward foreign currency exchange
transactions, see the Statement of Additional Information.)
OTHER TECHNIQUES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may
utilize spot and forward foreign exchange transactions to
reduce the risk caused by exchange rate fluctuations between
one currency and another when securities are purchased or
sold on a when-issued basis. It may also invest in synthetic
money market instruments. The Fund may invest in repurchase
agreements, provided that it will not invest more than 15% of
its net assets in repurchase agreements maturing in more than
seven days and any other illiquid securities. (See the
Statement of Additional Information.)
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of
time portfolio securities must be held. Accordingly, the
portfolio turnover rate may vary significantly from year to
year, but is not expected to exceed 100% under normal market
conditions. Flexibility of investment and emphasis on
capital appreciation may involve greater portfolio turnover
than that of mutual funds that have the objectives of income
or maintenance of a balanced investment position. A high
rate of portfolio turnover may result in increased
transaction expenses and the realization of capital gains and
losses. (See Distributions and Income Taxes.) The Fund is
not intended to be an income-producing investment.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements, /1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- -------------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- -------------------------
The policies summarized in the first three paragraphs of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as
such, can be changed only with the approval of a "majority of
the outstanding voting securities" of the Fund as defined in
the Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
Nothing in the investment restrictions outlined here shall be
deemed to prohibit the Fund from purchasing the securities of
any issuer pursuant to the exercise of subscription rights
distributed to the Fund by the issuer. No such purchase may
be made if, as a result, the Fund will no longer be a
diversified investment company as defined in the Investment
Company Act of 1940 or if the Fund will fail to meet the
diversification requirements of the Internal Revenue Code.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is
intended for long-term investors who can accept the risks
entailed in investing in foreign securities. Of course,
there can be no guarantee that the Fund will achieve its
objective.
Although the Fund does not attempt to reduce or limit risk
through wide industry diversification of investment, the Fund
usually allocates its investments among a number of different
industries rather than concentrating in a particular industry
or group of industries. The Fund will, however, not invest
more than 25% of its total assets (at the time of investment)
in the securities of companies in any one industry.
FOREIGN INVESTING.
The Fund provides long-term investors with an opportunity to
invest a portion of their assets in a diversified portfolio
of foreign securities. Non-U.S. investments may be
attractive because they increase diversification, as compared
to a portfolio comprised solely of U.S. investments. In
addition, many foreign economies have, from time to time,
grown faster than the U.S. economy, and the returns on
investments in these countries have exceeded those of similar
U.S. investments--there can be no assurance, however, that
these conditions will continue. International
diversification allows the Fund and an investor to achieve
greater diversification and to take advantage of changes in
foreign economies and market conditions.
Investors should understand and consider carefully the
greater risks involved in foreign investing. Investing in
foreign securities--positions which are generally denominated
in foreign currencies--and utilization of forward foreign
currency exchange contracts involve certain considerations
comprising both risks and opportunities not typically
associated with investing in U.S. securities. These
considerations include: fluctuations in exchange rates of
foreign currencies; possible imposition of exchange control
regulations or currency restrictions that would prevent cash
from being brought back to the United States; less public
information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities
brokers, and issuers of securities; lack of uniform
accounting, auditing, and financial reporting standards; lack
of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign
markets than in the United States; possible imposition of
foreign taxes; possible investment in the securities of
companies in developing as well as developed countries; and
sometimes less advantageous legal, operational, and financial
protections applicable to foreign sub-custodial arrangements.
These risks are greater for emerging markets.
Although the Fund will try to invest in companies and
governments of countries having stable political
environments, there is the possibility of expropriation or
confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange
controls, the adoption of foreign government restrictions,
and other adverse political, social or diplomatic
developments that could affect investment in these nations.
The price of securities of small, rapidly growing companies
is expected to fluctuate more widely than the general market
due to the difficulty in assessing financial prospects of
companies developing new products or operating in countries
with developing markets.
The strategy for selecting investments will be based on
various criteria. A company proposed for investment should
have a good market position in a fast-growing segment of the
economy, strong management, preferably a leading position in
its business, prospects of superior financial returns,
ability to self-finance, and securities available for
purchase at a reasonable market valuation. Because of the
foreign domicile of such companies, however, information on
some of the above factors may be difficult, if not
impossible, to obtain.
To the extent portfolio securities are issued by foreign
issuers or denominated in foreign currencies, the Fund's
investment performance is affected by the strength or
weakness of the U.S. dollar against these currencies. If the
dollar falls relative to the Japanese yen, for example, the
dollar value of a yen-denominated stock held in the portfolio
will rise even though the price of the stock remains
unchanged. Conversely, if the dollar rises in value relative
to the yen, the dollar value of the yen-denominated stock
will fall. (See the discussion of portfolio and transaction
hedging under Portfolio Investments and Strategies.)
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange ("NYSE") (currently 3:00 p.m., Central
time) by dividing the difference between the values of the
Fund's assets and liabilities by the number of shares
outstanding. Net asset value will not be determined on days
when the NYSE is closed unless, in the judgment of the Board
of Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
In computing the net asset value of the Fund, the values of
portfolio securities are generally based upon market
quotations. Depending upon local convention or regulation,
these market quotations may be the last sale price, last bid
or asked price, or the mean between the last bid and asked
prices as of, in each case, the close of the appropriate
exchange or other designated time. Trading in securities on
European and Far Eastern securities exchanges and over-the-
counter markets is normally completed at various times before
the close of business on each day on which the NYSE is open.
Trading of these securities may not take place on every NYSE
business day. In addition, trading may take place in various
foreign markets on Saturdays or on other days when the NYSE
is not open and on which the Fund's net asset value is not
calculated. Therefore, such calculation does not take place
contemporaneously with the determination of the prices of
many of the portfolio securities used in such calculation and
the value of the Fund's portfolio may be significantly
affected on days when shares of the Fund may not be purchased
or redeemed.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually.
The Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the
sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital
gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
U.S. FEDERAL INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
FOREIGN INCOME TAXES.
Investment income received by the Fund from sources within
foreign countries may be subject to foreign income taxes
withheld at the source. The United States has entered into
tax treaties with many foreign countries that entitle the
Fund to a reduced rate of tax or exemption from tax on such
income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets
to be invested within various countries will fluctuate and
the extent to which tax refunds will be recovered is
uncertain. The Fund intends to operate so as to qualify for
treaty-reduced tax rates where applicable.
To the extent that the Fund is liable for foreign income
taxes withheld at the source, the Fund also intends to
operate so as to meet the requirements of the U.S. Internal
Revenue Code to "pass through" to the Fund's shareholders
foreign income taxes paid, but there can be no assurance that
the Fund will be able to do so.
This discussion of U.S. and foreign taxation is not intended
to be a full discussion of income tax laws and their effect
on shareholders. You may wish to consult your own tax
advisor. The foregoing information applies to U.S.
shareholders. Foreign shareholders should consult their tax
advisors as to the tax consequences of ownership of Fund
shares.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND ADVISERS.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and additional
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund, subject to the direction of the Board of Trustees.
The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Bruno Bertocci and David P. Harris, co-portfolio managers of
the Fund, joined the Adviser in 1995 as senior vice president
and vice president, respectively, to create Stein Roe Global
Capital Management, a dedicated global and international
equity management unit. Messrs. Bertocci and Harris are also
employed by Colonial Management Associates, Inc., a
subsidiary of Liberty Financial, as vice presidents,
effective January, 1996.
Prior to joining the Adviser, Mr. Bertocci was a senior
global equity portfolio manager with Rockefeller & Co.
("Rockefeller") from 1983 to 1995. While at Rockefeller, he
served as portfolio manager for the Fund, when Rockefeller
was the Fund's sub-adviser. Mr. Bertocci managed
Rockefeller's London office from 1987 to 1989 and its Hong
Kong office from 1989 to 1990. Prior to working at
Rockefeller, he served for three years at T. Rowe Price
Associates. Mr. Bertocci is a graduate of Oberlin College
and holds an M.B.A. from Harvard University.
Mr. Harris was a portfolio manager with Rockefeller from 1990
to 1995. After earning a bachelor's degree from the
University of Michigan, he was an actuarial associate for
GEICO before returning to school to earn an M.B.A. from
Cornell University.
FEES AND EXPENSES.
In return for its services, the Adviser receives a monthly
fee from the Fund, computed and accrued daily, at an annual
rate of 1% of average net assets. This fee is higher than
the fees paid by most mutual funds. Please refer to the Fee
Table for a description of the Fund's expense limitation.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular series shall
look only to the assets of the Trust or of the respective
series for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the
Trust is also believed to be remote, because it would be
limited to claims to which the disclaimer did not apply and
to circumstances in which the other series was unable to meet
its obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
_____________
<PAGE>
STEIN ROE INVESTMENT TRUST
STEIN ROE SPECIAL VENTURE FUND
THE FEBRUARY 1, 1996 DATE OF THIS DEFINED CONTRIBUTION PLANS
PROSPECTUS IS NULL AND VOID. THE NEW DATE OF THIS PROSPECTUS IS
JULY 1, 1996
SUPPLEMENT
NEW AGREEMENTS. On July 1, 1996, the investment advisory
agreement with Stein Roe & Farnham Incorporated (the "Adviser")
relating to the Fund was replaced with an administrative agreement
and a management agreement. The new fee schedule (which does not
result in a fee increase) calls for a management fee at an annual
rate of .75% of average daily net assets and an administrative fee
of .15%, for a total annual fee of .90% of average net assets.
INTERFUND LENDING PROGRAM. On June 18, 1996, the Fund's
shareholders approved changes in the Fund's investment
restrictions regarding borrowing and lending to permit the Fund to
participate in an interfund lending program with other mutual
funds managed by the Adviser. The third paragraph under
Restrictions on the Fund's Investments (page 6 of the Prospectus)
is revised to read as follows:
"The Fund may not make loans except that it may (1) purchase
money market instruments and enter into repurchase agreements;
(2) acquire publicly-distributed or privately-placed debt
securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending
program with other Stein Roe Funds. The Fund may not borrow
money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the Fund's aggregate borrowings
(including reverse repurchase agreements) nor the Fund's
aggregate loans at any one time may exceed 33 1/3% of the
value of its total assets."
SHORT SALES AGAINST THE BOX. The Fund may sell short
securities the Fund owns or has the right to acquire without
further consideration, a technique called selling short "against
the box." Short sales against the box may protect the Fund
against the risk of losses in the value of its portfolio
securities because any unrealized losses with respect to such
securities should be wholly or partly offset by a corresponding
gain in the short position. However, any potential gains in such
securities should be wholly or partially offset by a corresponding
loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or
otherwise, the Adviser does not want to sell the security. For a
more complete explanation, please refer to the Statement of
Additional Information.
ADDRESS CHANGE. The Statement of Additional Information
dated July 1, 1996 and the Fund's most recent financial statements
may be obtained without charge by writing to the Secretary of the
Trust at Suite 3200, One South Wacker Drive, Chicago, Illinois 60606,
or by calling 800-338-2550.
FINANCIAL HIGHLIGHTS. The per share data (for a share
outstanding throughout the period) contained in the section
Financial Highlights (page 3 of the Prospectus) is updated by
adding the following unaudited financial information for the six
months ended March 31, 1996:
NET ASSET VALUE, BEGINNING OF PERIOD....................$12.60
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income..................................(0.01)
Net realized and unrealized gains on investments..... 1.61
------
Total from investment operations................... 1.60
------
DISTRIBUTIONS
Net investment income................................. --
Net realized capital gains........................... (0.57)
------
Total distributions................................ (0.57)
------
NET ASSET VALUE, END OF PERIOD..........................$13.63
------
------
Ratio of net expenses to average net assets.............*1.25%
Ratio of net investment income to average net assets ..*(0.14%)
Portfolio turnover rate....................................18%
Average commissions (per share).......................$0.0.212
Total return............................................13.21%
Net assets, end of period (000 omitted)................$96,797
_______________
*Annualized.
(a) If the Fund had paid all of its expenses and there had been
no reimbursement of expenses by the Adviser, for the period
ended March 31, 1996, this ratio would have been 1.40%.
(b) Computed giving effect to the Adviser's expense limitation
undertaking.
____________________________
<PAGE>
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE SPECIAL VENTURE FUND
The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of equity securities of
entrepreneurially managed companies. The Fund emphasizes
investments in financially strong small and medium-sized
companies, based principally on management appraisal and
stock valuation.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130. The Statement of
Additional Information contains information relating to other
series of the Stein Roe Investment Trust that may not be
available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...3
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 5
Risks and Investment Considerations.. .6
How to Purchase Shares.............. ...7
How to Redeem Shares .................. 7
Net Asset Value ...................... .8
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................9
Organization and Description of Shares.10
For More Information ..................10
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(after expense reimbursement; as a percentage
of average net assets)
Management and Administrative Fees 0.48%
12b-1 Fees None
Other Expenses 0.77%
-----
Total Fund Operating Expenses
(after expense reimbursement) 1.25%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end
of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$13 $40 $69 $151
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in a Fund.
Transfer agency fees were changed effective May 1, 1995. The
above table illustrates expenses that would have been borne
by investors in the last fiscal year assuming that the fee
changes had been in effect for the entire year; since the
Fund had less than one year of operation for the reporting
period, expenses have been annualized. From time to time,
the Adviser may voluntarily absorb certain expenses of the
Fund. The Adviser has agreed to voluntarily waive its
management fee and absorb the Fund's expenses to the extent
that such fees and expenses on an annualized basis exceed
1.25% of its annual average net assets through January 31,
1997, subject to earlier termination by the Adviser on 30
days' notice. Any such absorption will temporarily lower the
Fund's overall expense ratio and increase its overall return
to investors. Absent such expense undertaking, Management
and Administrative Fees and Total Fund Operating Expenses for
the Fund would have been 0.90% and 1.67%, respectively.
(Also see Management of the Funds--Fees and Expenses.)
For purposes of the Example above, the figures assume that
the percentage amounts listed for the Fund under Annual Fund
Operating Expenses remain the same in each of the periods and
that all income dividends and capital gain distributions are
reinvested in additional Fund shares. The figures in the
Example are not necessarily indicative of past or future
expenses, and actual expenses may be greater or less than
those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing the Fund's
expenses and in providing a basis for comparison with other
mutual funds, it should not be used for comparison with other
investments using different assumptions or time periods.
These examples do not reflect any charges or expenses related
to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the period shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
Period Ended
Sept. 30, 1995 (a)
------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01
Net realized and unrealized gains on investments 2.67
------
Total from investment operations 2.68
------
DISTRIBUTIONS
Net investment income (0.03)
Net realized capital gains (0.05)
------
Total distributions (0.08)
------
NET ASSET VALUE, END OF PERIOD $12.60
------
------
Ratio of net expenses to average net assets (b) *1.25%
Ratio of net investment income to average net assets (c) *0.12%
Portfolio turnover rate 84%
Total return 26.96%
Net assets, end of period (000 omitted) $60,533
- ------------
*Annualized.
(a) From the commencement of operations on October 17, 1994 .
(b) If the Fund had paid all of its expenses and there had
been no reimbursement by the Adviser, this ratio would
have been 2.87% for the period ended September 30, 1995.
(c) Computed giving effect to the Adviser's expense limitation
undertaking.
__________________________
THE FUND
STEIN ROE SPECIAL VENTURE FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own
shares to investors and use the money they receive to invest
in a portfolio of securities such as common stocks. A mutual
fund allows you to pool your money with that of other
investors in order to obtain professional investment
management. Mutual funds generally make it possible for you
to obtain greater diversification of your investments and
simplify your recordkeeping. The Fund does not impose
commissions or charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including equity funds, international funds,
taxable and tax-exempt bond funds, and money market funds.
To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call
800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of common stocks and
other equity-type securities (such as preferred stocks,
securities convertible or exchangeable for common stocks, and
warrants or rights to purchase common stocks) of
entrepreneurially managed companies that the Adviser believes
represent special opportunities. The Fund emphasizes
investments in financially strong small and medium-sized
companies, based principally on management appraisal and
stock valuation. The Adviser considers "small" and "medium-
sized" companies to be those with market capitalizations of
less than $1 billion and $1 to $3 billion, respectively.
In both its initial and ongoing appraisals of a company's
management, the Adviser seeks to know both the principal
owners and senior management and to assess their business
judgment and strategies through personal visits. The Adviser
favors companies whose management has an owner/operator,
risk-averse orientation and a demonstrated ability to create
wealth for investors. Attractive company characteristics
include unit growth, favorable cost structures or competitive
positions, and financial strength that enables management to
execute business strategies under difficult conditions. A
company is attractively valued when its stock can be
purchased at a meaningful discount to the value of the
underlying business. Further information on portfolio
investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the
Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in
debt securities of corporate and governmental issuers. The
Fund may invest up to 35% of its net assets in debt
securities, but it does not currently intend to invest more
than 5% of its net assets in debt securities rated below
investment grade. The risks inherent in debt securities
depend primarily on the term and quality of the obligations
in the Fund's portfolio as well as on market conditions. A
decline in the prevailing levels of interest rates generally
increases the value of debt securities, while an increase in
rates usually reduces the value of those securities.
Securities that are rated below investment grade are
considered predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal
according to the terms of the obligation and therefore carry
greater investment risk, including the possibility of issuer
default and bankruptcy. When the Adviser determines that
adverse market or economic conditions exist and considers a
temporary defensive position advisable, the Fund may invest
without limitation in high-quality fixed income securities or
hold assets in cash or cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a
U.S. person, the Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) The Fund may invest in
sponsored and unsponsored ADRs. In addition to, or in lieu
of, such direct investment, a Fund may construct a synthetic
foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate
of exchange. Because of the availability of a variety of
highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may
offer greater liquidity than direct investment in foreign
currency debt instruments. In connection with the purchase
of foreign securities, the Fund may contract to purchase an
amount of foreign currency sufficient to pay the purchase
price of the securities at the settlement date. Such a
contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar
prior to the settlement date--this risk is in addition to the
risk that the value of the foreign security purchased may
decline. The Fund also may enter into foreign currency
contracts as a hedging technique to limit or reduce exposure
to currency fluctuations. In addition, the Fund may use
options and futures contracts, as described below, to limit
or reduce exposure to currency fluctuations. As of September
30, 1995, the Fund's holdings of foreign companies, as a
percentage of net assets, were 4.9% (4.9% in foreign
securities and none in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information.
PORTFOLIO TURNOVER
Under normal circumstances, the Fund expects to experience
moderate portfolio turnover with an investment time horizon
of three to five years. Although the portfolio turnover rate
is not expected to exceed 100% under normal market
conditions, there are no limitations on the length of time
that portfolio securities must be held. Flexibility of
investment and emphasis on capital appreciation may involve
greater portfolio turnover than that of mutual funds that
have the objectives of income or maintenance of a balanced
investment position. A high rate of portfolio turnover may
result in increased transaction expenses and the realization
of capital gains and losses. (See Distributions and Income
Taxes.) The Fund is not intended to be an income-producing
investment.
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized
by underlying pools of mortgages or other receivables,
floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived"
from the performance of an underlying asset or a "benchmark"
such as a security index, an interest rate, or a currency.
The Fund does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes or other benchmarks.
The Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require
low margin deposits, the use of futures contracts involves a
high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements,/1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- -------------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- --------------
The policies summarized in the first three paragraphs of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as
such, can be changed only with the approval of a "majority of
the outstanding voting securities" of the Fund as defined in
the Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is
designed for long-term investors who want greater return
potential than available from the stock market in general,
and who are willing to tolerate the greater investment risk
and market volatility associated with investments in small
and medium-sized companies. Securities of such companies may
be subject to greater price volatility than securities of
larger companies and tend to have a lower degree of market
liquidity. They also may be more sensitive to changes in
economic and business conditions, and may react differently
than securities of larger companies. In addition, such
companies are less well known to the investing public and may
not be as widely followed by the investment community. There
can be no guarantee that the Fund will achieve its objective.
Debt securities rated in the fourth highest grade may have
some speculative characteristics, and changes in economic
conditions or other circumstances may lead to a weakened
capacity of the issuers of such securities to make principal
and interest payments. Securities rated below investment
grade may possess speculative characteristics, and changes in
economic conditions are more likely to affect the issuer's
capacity to pay interest or repay principal.
Although the Fund does not attempt to reduce or limit risk
through wide industry diversification of investment, the Fund
usually allocates its investments among a number of different
industries rather than concentrating in a particular industry
or group of industries. The Fund will not invest more than
25% of its total assets (at the time of investment) in the
securities of companies in any one industry.
Investment in foreign securities may represent a greater
degree of risk (including risk related to exchange rate
fluctuations, tax provisions, exchange and currency controls,
and expropriation of assets) than investment in securities of
domestic issuers. Other risks of foreign investing include
less complete financial information on issuers, less market
liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition
of exchange controls and withholding taxes on dividends, and
seizure or nationalization of investments owned by non-
residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's
assets and liabilities by the number of shares outstanding.
Net asset value will not be determined on days when the
Exchange is closed unless, in the judgment of the Board of
Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
NASDAQ is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation.
Long-term straight-debt obligations are valued at a fair
value using a procedure determined in good faith by the Board
of Trustees. Pricing services approved by the Board provide
valuations (some of which may be "readily available market
quotations"). These valuations are reviewed by the Adviser.
If the Adviser believes that a valuation received from the
service does not represent a fair value, it values the
obligation using a method that the Board believes represents
fair value. The Board may approve the use of other pricing
services and any pricing service used may employ electronic
data processing techniques, including a so-called "matrix"
system, to determine valuations. Securities convertible into
stocks are valued at the latest valuation from a principal
market maker. Other assets and securities are valued by a
method that the Board believes represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually.
The Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the
sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital
gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and other
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund's investment portfolio and the business affairs of
the Fund and the Trust, subject to the direction of the Board
of Trustees. The Adviser is registered as an investment
adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
E. Bruce Dunn and Richard B. Peterson have been co-portfolio
managers of the Fund since its inception in 1994. Each is a
vice-president of the Trust and a senior vice president of
the Adviser. Mr. Dunn has been associated with the Adviser
since 1964. He received his A.B. degree from Yale University
in 1956 and his M.B.A. from Harvard University in 1958 and is
a chartered investment counselor. Mr. Peterson, who began
his investment career at Stein Roe & Farnham in 1965 after
graduating with a B.A. from Carleton College in 1962 and the
Woodrow Wilson School at Princeton University in 1964 with a
Masters in Public Administration, rejoined the Adviser in
1991 after 15 years of equity research and portfolio
management experience with State Farm Investment Management
Corporation. As of December 31, 1995, Messrs. Dunn and
Peterson were responsible for co-managing $1.3 billion in
mutual fund assets.
FEES AND EXPENSES.
In return for its services, pursuant to an investment
advisory agreement with the Trust relating to the Fund, the
Adviser receives a monthly fee from the Fund, computed and
accrued daily, at an annual rate of 0.90 of 1% of average net
assets. This fee is higher than the fees paid by most mutual
funds. The fee for the period ended September 30, 1995, after
the expense limitation referred to under Fee Table, amounted
to 0.48% of average net assets.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular Fund shall
look only to the assets of the Trust or of the respective
Fund for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on
account of unsatisfied liability of another Fund of the Trust
is also believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to
circumstances in which the other Fund was unable to meet its
obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
______________________
<PAGE>
STEIN ROE INVESTMENT TRUST
STEIN ROE BALANCED FUND
THE APRIL 17, 1996 DATE OF THIS DEFINED CONTRIBUTION PLANS
PROSPECTUS IS NULL AND VOID. THE NEW DATE OF THIS PROSPECTUS IS
JULY 1, 1996
SUPPLEMENT
INTERFUND LENDING PROGRAM. On June 18, 1996, the Fund's
shareholders approved changes in the Fund's investment
restrictions regarding borrowing and lending to permit the Fund to
participate in an interfund lending program with other mutual
funds managed by the Adviser. The third paragraph under
Restrictions on the Fund's Investments (page 6 of the Prospectus)
is revised to read as follows:
"The Fund may not make loans except that it may (1) purchase
money market instruments and enter into repurchase agreements;
(2) acquire publicly-distributed or privately-placed debt
securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending
program with other Stein Roe Funds. The Fund may not borrow
money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the Fund's aggregate borrowings
(including reverse repurchase agreements) nor the Fund's
aggregate loans at any one time may exceed 33 1/3% of the
value of its total assets."
SHORT SALES AGAINST THE BOX. The Fund may sell short
securities the Fund owns or has the right to acquire without
further consideration, a technique called selling short "against
the box." Short sales against the box may protect the Fund
against the risk of losses in the value of its portfolio
securities because any unrealized losses with respect to such
securities should be wholly or partly offset by a corresponding
gain in the short position. However, any potential gains in such
securities should be wholly or partially offset by a corresponding
loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or
otherwise, the Adviser does not want to sell the security. For a
more complete explanation, please refer to the Statement of
Additional Information.
ADDRESS CHANGE. The Statement of Additional Information
dated July 1, 1996 and the Fund's most recent financial statements
may be obtained without charge by writing to the Secretary of the
Trust at Suite 3200 One South Wacker Drive, Chicago, Illinois 60606,
or by calling 800-338-2550.
FINANCIAL HIGHLIGHTS. The per share data (for a share
outstanding throughout the period) contained in the section
Financial Highlights (page 3 of the Prospectus) is updated by
adding the following unaudited financial information for the six
months ended March 31, 1996:
NET ASSET VALUE, BEGINNING OF PERIOD..................$27.82
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................................0.51
Net realized and unrealized gains on investments... 2.21
------
Total from investment operations................. 2.72
------
DISTRIBUTIONS
Net investment income................................(0.57)
Net realized capital gains......................... (0.70)
------
Total distributions.............................. (1.27)
------
NET ASSET VALUE, END OF PERIOD........................$29.27
------
------
Ratio of net expenses to average net assets...........*1.06%
Ratio of net investment income to average net assets .*3.58%
Portfolio turnover rate..................................36%
Average commissions (per share)......................$0.0606
Total return..........................................10.11%
Net assets, end of period (000 omitted).............$231,595
_______________
*Annualized.
______________________
<PAGE>
[STEIN ROE FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE BALANCED FUND
(FORMERLY NAMED STEIN ROE TOTAL RETURN FUND)
The Fund seeks long-term growth of capital and current income,
consistent with reasonable investment risk.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated April 17, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 800-
322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Investment
Trust that may not be available as investment vehicles for your
defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 17, 1996
Table of Contents
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...3
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 5
Risks and Investment Considerations.. . 6
How to Purchase Shares.............. ...7
How to Redeem Shares .................. 7
Net Asset Value ...................... .7
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................9
Organization and Description of Shares.10
For More Information ..................10
<PAGE>
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administrative Fees 0.70%
12b-1 Fees None
Other Expenses 0.37%
-----
Total Fund Operating Expenses 1.07%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end
of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$11 $34 $59 $131
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The Fund's transfer agency
fees were changed effective May 1, 1995, and changes in management
and administrative fees became effective on September 1, 1995.
The above table illustrates expenses that would have been borne by
investors in the last fiscal year assuming that the fee changes
had been in effect for the entire year. For purposes of the
Example above, the figures assume that the percentage amounts
listed for the Fund under Annual Fund Operating Expenses remain
the same in each of the periods, that all income dividends and
capital gain distributions are reinvested in additional Fund
shares, and that, for purposes of management fee breakpoints, the
Fund's net assets remain at the same level as in the most recently
completed fiscal year. The figures in the Example are not
necessarily indicative of past or future expenses, and actual
expenses may be greater or less than those shown. Although
information such as that shown in the Example and Fee Table is
useful in reviewing the Fund's expenses and in providing a basis
for comparison with other mutual funds, it should not be used for
comparison with other investments using different assumptions or
time periods. These examples do not reflect any charges or
expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund for
the periods shown on a per-share basis. The information for
periods after December 31, 1987, has been audited by Arthur
Andersen LLP, independent public accountants. All of the
auditors' reports were unqualified. This table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $21.37 $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 1.41 1.33 1.32 0.97 1.37 1.28 1.32 1.31 1.26 1.15 1.33
Net realized and
unrealized gains
(losses) on investments 3.87 2.75 (1.06) 0.45 3.10 (2.92) 4.85 1.48 2.37 (1.06) 2.22
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 5.28 4.08 0.26 1.42 4.47 (1.64) 6.17 2.79 3.63 0.09 3.55
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (1.42) (1.35) (1.63) (0.90) (1.34) (1.36) (1.26) (1.34) (1.30) (1.17) (1.23)
Net realized capital
gains (0.19) (2.70) (1.45) (0.11) (0.38) (0.73) (0.51) (0.62) (1.67) (0.71) (0.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (1.61) (4.05) (3.08) (1.01) (1.72) (2.09) (1.77) (1.96) (2.97) (1.88) (1.51)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.77% 0.79% 0.80% *0.87% 0.90% 0.88% 0.87% 0.85% 0.81% 0.83% 0.87%
Ratio of net investment
income to average net
assets 6.30% 5.21% 5.12% *5.68% 5.83% 5.36% 5.50% 4.94% 4.69% 4.53% 5.14%
Portfolio turnover rate 100% 108% 86% 85% 93% 75% 71% 59% 53% 29% 45%
Total return 25.78% 17.11% 0.74% 6.51% 20.76% (6.86%) 29.67% 11.13% 14.57% 0.36% 14.49%
Net assets, end of
period (000 omitted) $128,676 $149,831 $140,279 134,225 $144,890 $124,592 $150,689 $173,417 $222,292 $229,274 $228,560
</TABLE>
- --------------
*Annualized.
(a) For the year ended December 31, 1986, the average amount
of debt outstanding for the Fund was $2,222, the average
number of shares outstanding was 5,506,763, and the average
amount of debt outstanding was $0.0004 per share. The Fund
had no borrowings outstanding during any other periods.
__________________________
THE FUND
STEIN ROE BALANCED FUND (the "Fund") is a no-load, diversified
"mutual fund." Mutual funds sell their own shares to investors
and use the money they receive to invest in a portfolio of
securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages several
other no-load mutual funds with different investment objectives,
including equity funds, international funds, taxable and tax-
exempt bond funds, and money market funds. To obtain prospectuses
and other information on opening a regular account in any of these
mutual funds, please call 800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's name and investment objective were changed on April 17,
1996. Prior to that date, the Fund was a total return fund.
The Fund seeks long-term growth of capital and current income,
consistent with reasonable investment risk. The Fund's assets are
allocated among equities, debt securities and cash. The portfolio
manager determines those allocations using the Adviser's
investment strategists' views regarding economic, market and other
factors relative to investment opportunities.
The equity portion of the Fund's portfolio is invested primarily
in well-established companies having market capitalizations in
excess of $1 billion. Debt securities will make up at least 25%
of the Fund's total assets. Investments in debt securities are limited
to those that are within the four highest grades (generally referred to
as "investment grade") assigned by a nationally recognized
statistical rating organization or, if unrated, determined by the
Adviser to be of comparable quality. Further information on
portfolio investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
CONVERTIBLE SECURITIES.
By investing in convertible securities, the Fund obtains the right
to benefit from the capital appreciation potential in the
underlying stock upon exercise of the conversion right, while
earning higher current income than would be available if the stock
were purchased directly. In determining whether to purchase a
convertible, the Adviser will consider substantially the same
criteria that would be considered in purchasing the underlying
stock. The convertible securities purchased by the Fund are are
limited to those that are within the four highest grades
(generally referred to as "investment grade") assigned by a
nationally recognized statistical rating organization or, if
unrated, determined by the Adviser to be of comparable quality.
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers. Investment in
debt securities is limited to those that are rated within the four
highest grades (generally referred to as investment grade).
Securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more
likely to affect the issuer's capacity to pay interest and repay
principal. If the rating of a security held by the Fund is lost
or reduced below investment grade, the Fund is not required to
dispose of the security--the Adviser will, however, consider that
fact in determining whether the Fund should continue to hold the
security. When the Adviser deems a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities, or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than American
Depositary Receipts (ADRs), foreign debt securities denominated in
U.S. dollars, or securities guaranteed by a U.S. person, the Fund
is limited to investing no more than 25% of its total assets in
foreign securities. (See Risks and Investment Considerations.)
The Fund may invest in sponsored or unsponsored ADRs. In addition
to, or in lieu of, such direct investment, a Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar prior to
the settlement date--this risk is in addition to the risk that the
value of the foreign security purchased may decline. The Fund
also may enter into foreign currency contracts as a hedging
technique to limit or reduce its exposure to currency
fluctuations. In addition, the Fund may use options and futures
contracts, as described below, to limit or reduce exposure to
currency fluctuations. As of September 30, 1995, the Fund's
holdings of foreign companies, as a percentage of net assets, were
5.2% (1.0% in foreign securities and 4.2% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued or
delayed-delivery basis. Although the payment terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed. The Fund will make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for
investment reasons. The Fund may make loans of its portfolio
securities to broker-dealers and banks subject to certain
restrictions described in the Statement of Additional Information.
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, floating rate
instruments, and other instruments that securitize assets of
various types ("Derivatives"). In each case, the value of the
instrument or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index, an
interest rate, or a currency. The Fund does not expect to invest
more than 5% of its net assets in any type of Derivative except
for options, futures contracts, and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund may: (1)
purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes or other benchmarks. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund foregoes, during the option's
life, the opportunity to profit from increases in market value of
the security covering the call option above the sum of the premium
and the exercise price of the call. There can be no assurance
that a liquid market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. The turnover rate may vary
significantly from year to year. Although there will be some
portfolio turnover in the near term as the portfolio is realigned
in accordance with the Fund's new investment objective, over the
long term, turnover should be between 50% and 100%. A high rate
of portfolio turnover may result in increased transaction expenses
and the realization of capital gains and losses. (See
Distributions and Income Taxes and Management of the Fund.)
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets. The Board of Trustees has called a meeting of the
shareholders of the Fund on June 18, 1996, to consider, among
other things, a proposal to amend the Fund's fundamental
investment restrictions to allow it to engage in borrowing and
lending transactions with affiliated Funds in an "interfund
lending program."
The Fund may invest in repurchase agreements, /1/ provided that
the Fund will not invest more than 15% of its net assets in
repurchase agreements maturing in more than seven days, and any
other illiquid securities.
- ---------------------
/1/ A repurchase agreement involves a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
- ---------------------
The policies summarized in the first three paragraphs under this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment objective
is non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in the Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
ALL INVESTMENTS, INCLUDING THOSE IN MUTUAL FUNDS, HAVE RISKS. NO
INVESTMENT IS SUITABLE FOR ALL INVESTORS. THE FUND IS DESIGNED
FOR LONG-TERM INVESTORS WHO CAN ACCEPT THE FLUCTUATIONS IN
PORTFOLIO VALUE AND OTHER RISKS ASSOCIATED WITH SEEKING LONG-TERM
CAPITAL APPRECIATION THROUGH INVESTMENTS IN SECURITIES. The Fund
usually allocates its investments among a number of different
industries rather than concentrating in a particular industry or
group of industries; however, under abnormal circumstances, it may
invest up to 25% of net assets in a particular industry or group
of industries. There can be no guarantee that the Fund will
achieve its objective.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, less market liquidity, more market
volatility, less developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser
for investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Central time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
Long-term straight-debt obligations are valued at a fair value
using a procedure determined in good faith by the Board of
Trustees. Pricing services approved by the Board provide
valuations (some of which may be "readily available market
quotations"). These valuations are reviewed by the Adviser. If
the Adviser believes that a valuation received from the service
does not represent a fair value, it values the obligation using a
method that the Board believes represents fair value. The Board
may approve the use of other pricing services and any pricing
service used may employ electronic data processing techniques,
including a so-called "matrix" system, to determine valuations.
Securities convertible into stocks are valued at the latest
valuation from a principal market maker. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid each calendar
quarter. However, because the Fund is required to distribute at
least 98% of its net investment income by the end of the calendar
year, an additional dividend may be declared near year end. The
Fund intends to distribute by the end of each calendar year at
least 98% of any net capital gains realized from the sale of
securities during the twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of the
Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. The Fund's total return does not reflect any charges
or expenses related to your employer's plan. Of course, past
performance is not necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund's investment portfolio
and the business affairs of the Fund and the Trust, subject to the
direction of the Board of Trustees. The Adviser is registered as
an investment adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a wholly owned indirect
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn is a majority owned indirect subsidiary
of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Harvey B. Hirschhorn became the Fund's portfolio manager in April,
1996. Mr. Hirschhorn is Executive Vice President and Chief
Economist & Investment Strategist of the Adviser, which he joined
in 1973. He received an A.B. degree from Rutgers College in 1971
and an M.B.A. from the University of Chicago in 1973, and is a
chartered financial analyst. As of December 31, 1995, Mr.
Hirschhorn was responsible for managing $512 million in mutual
fund assets. William Garrison and Sandra L. Knight are associate
portfolio managers of the Fund. Mr. Garrison joined the Adviser
in 1989. He received his A.B. from Princeton University in 1988.
Ms. Knight earned a B.S. degree from Lawrence Technological
University (1984) and an M.B.A. from Loyola University of Chicago
(1991). She has been employed by the Adviser as an economic
analyst since 1991.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative agreement
and a management agreement. Under the terminated advisory
agreement, the annual fee, based on average net assets, was .625%
of the first $100 million and .50% above that amount. The new
contracts call for a monthly management fee based on an annual
rate of .55% of the first $500 million, .50% of the next $500
million, and .45% thereafter; and a monthly administrative fee
based on an annual rate of .15% of the first $500 million, .125%
of the next $500 million, and .10% thereafter. For the year ended
September 30, 1995, the fees for the Fund amounted to .57% of
average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly owned subsidiary of Liberty Financial, is the
agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other Fund was unable to meet its obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
_________________
<PAGE>
STEIN ROE INVESTMENT TRUST
STEIN ROE GROWTH STOCK FUND
THE FEBRUARY 1, 1996 DATE OF THIS DEFINED CONTRIBUTION PLANS
PROSPECTUS IS NULL AND VOID. THE NEW DATE OF THIS PROSPECTUS IS
JULY 1, 1996
SUPPLEMENT
INTERFUND LENDING PROGRAM. On June 18, 1996, the Fund's
shareholders approved changes in the Fund's investment
restrictions regarding borrowing and lending to permit the Fund to
participate in an interfund lending program with other mutual
funds managed by the Adviser. The third paragraph under
Restrictions on the Fund's Investments (page 5 of the Prospectus)
is revised to read as follows:
"The Fund may not make loans except that it may (1) purchase
money market instruments and enter into repurchase agreements;
(2) acquire publicly-distributed or privately-placed debt
securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending
program with other Stein Roe Funds. The Fund may not borrow
money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the Fund's aggregate borrowings
(including reverse repurchase agreements) nor the Fund's
aggregate loans at any one time may exceed 33 1/3% of the
value of its total assets."
PORTFOLIO MANAGER CHANGES. In view of his new
responsibilities with respect to another Fund, Harvey B.
Hirschhorn stepped down in April, 1996, as co-manager of Growth
Stock Fund. Erik P. Gustafson continues to manage the portfolio
of Growth Stock Fund, with David P. Brady as associate portfolio
manager. Mr. Brady is a vice president of the Adviser, which he
joined in 1993, and was an equity investment analyst with State
Farm Mutual Automobile Insurance Company from 1986 to 1993. A
chartered financial analyst, Mr. Brady earned a B.S. in Finance,
graduating Magna Cum Laude, from the University of Arizona in
1986, and an M.B.A. from the University of Chicago in 1989.
Please refer to page 9 of this Prospectus for biographical
information on Mr. Gustafson.
SHORT SALES AGAINST THE BOX. The Fund may sell short
securities the Fund owns or has the right to acquire without
further consideration, a technique called selling short "against
the box." Short sales against the box may protect the Fund
against the risk of losses in the value of its portfolio
securities because any unrealized losses with respect to such
securities should be wholly or partly offset by a corresponding
gain in the short position. However, any potential gains in such
securities should be wholly or partially offset by a corresponding
loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or
otherwise, the Adviser does not want to sell the security. For a
more complete explanation, please refer to the Statement of
Additional Information.
ADDRESS CHANGE. The Statement of Additional Information
dated July 1, 1996 and the Fund's most recent financial statements
may be obtained without charge by writing to the Secretary of the
Trust at Suite 3200, One South Wacker Drive, Chicago, Illinois 60606,
or by calling 800-338-2550.
FINANCIAL HIGHLIGHTS. The per share data (for a share
outstanding throughout the period) contained in the section
Financial Highlights (page 3 of the Prospectus) is updated by
adding the following unaudited financial information for the six
months ended March 31, 1996:
NET ASSET VALUE, BEGINNING OF PERIOD....................$26.13
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income...................................0.04
Net realized and unrealized gains on investments..... 2.49
------
Total from investment operations................... 2.53
------
DISTRIBUTIONS
Net investment income..................................(0.10)
Net realized capital gains........................... (2.33)
------
Total distributions................................ (2.43)
------
NET ASSET VALUE, END OF PERIOD..........................$26.23
------
------
Ratio of net expenses to average net assets.............*1.08%
Ratio of net investment income to average net assets ..*0.37%
Portfolio turnover rate....................................25%
Average commissions (per share)........................$0.0513
Total return............................................10.28%
Net assets, end of period (000 omitted)...............$389,480
_______________
*Annualized.
_________________________
<PAGE>
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE GROWTH STOCK FUND
The Fund seeks long-term capital appreciation by investing in
common stock and other equity-type securities.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130. The Statement of
Additional Information contains information relating to other
series of the Stein Roe Investment Trust that may not be
available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...4
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 5
Risks and Investment Considerations.. . 6
How to Purchase Shares.............. ...6
How to Redeem Shares .................. 7
Net Asset Value ...................... .7
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................8
Organization and Description of Shares. 9
For More Information ..................10
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administrative Fees 0.75%
12b-1 Fees None
Other Expenses 0.33%
-----
Total Fund Operating Expenses 1.08%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end
of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$11 $34 $60 $132
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in the Fund. The
Fund's transfer agency fees were changed effective May 1,
1995, and changes in management and administrative fees
became effective on September 1, 1995. The above table
illustrates expenses that would have been borne by investors
in the last fiscal year assuming that the fee changes had
been in effect for the entire year. For purposes of the
Example above, the figures assume that the percentage amounts
listed for the Fund under Annual Fund Operating Expenses
remain the same in each of the periods; that all income
dividends and capital gain distributions are reinvested in
additional Fund shares; and that, for purposes of management
fee breakpoints, the Fund's net assets remain at the same
level as in the most recently completed fiscal year. The
figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or
less than those shown. Although information such as that
shown in the Example and Fee Table is useful in reviewing the
Fund's expenses and in providing a basis for comparison with
other mutual funds, it should not be used for comparison with
other investments using different assumptions or time
periods. These examples do not reflect any charges or
expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the periods shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.04 $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.31 0.26 0.24 0.19 0.34 0.39 0.33 0.18 0.15 0.13 0.12
Net realized and
unrealized gains (losses)
on investments 3.38 2.75 0.46 (0.11) 4.51 (1.17) 5.90 3.01 1.14 0.41 5.60
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 3.69 3.01 0.70 0.08 4.85 (0.78) 6.23 3.19 1.29 0.54 5.72
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.30) (0.25) (0.29) (0.15) (0.34) (0.37) (0.42) (0.16) (0.10) (0.12) (0.15)
Net realized capital gains -- (3.22) (2.71) -- (0.06) -- (0.92) (1.17) (0.95) (1.73) (3.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.30) (3.47) (3.00) (0.15) (0.40) (0.37) (1.34) (1.33) (1.05) (1.85) (3.17)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.67% 0.67% 0.65% *0.76% 0.77% 0.73% 0.79% 0.92% 0.93% 0.94% 0.99%
Ratio of net investment
income to average net
assets 1.89% 1.34% 1.25% *1.62% 2.05% 2.03% 1.63% 0.75% 0.59% 0.50% 0.56%
Portfolio turnover rate 114% 137% 143% 84% 47% 40% 34% 23% 29% 27% 36%
Total return 26.35% 16.91% 5.57% 0.54% 33.86% (4.17%) 36.64% 14.37% 5.09% 2.10% 28.18%
Net assets, end
of period (000 omitted) $224,371 $226,604 $232,658 $195,641 $206,476 $206,031 $291,767 $372,758 $373,921 $321,502 $360,336
</TABLE>
- ------------
*Annualized
(a) For the periods indicated below, bank borrowing activity
was as follows:
Debt
outstanding Average debt Average shares Average
at end of outstanding outstanding debt per
Period period (in during period during period during
Ended thousands) (in thousands) (in thousands) period
- ------------ ----------- ------------ -------------- --------
12/31/85 -- 5 13,977 0.0004
9/30/89 -- 124 11,745 0.0106
The Fund had no bank borrowings during any other periods.
__________________________
THE FUND
STEIN ROE GROWTH STOCK FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own
shares to investors and use the money they receive to invest
in a portfolio of securities such as common stocks. A mutual
fund allows you to pool your money with that of other
investors in order to obtain professional investment
management. Mutual funds generally make it possible for you
to obtain greater diversification of your investments and
simplify your recordkeeping. The Fund does not impose
commissions or charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and accounting and
bookkeeping services to the Fund. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including equity funds, international funds,
taxable and tax-exempt bond funds, and money market funds.
To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call
800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by normally
investing at least 65% of its total assets in common stock
and other equity-type securities (such as preferred stocks,
securities convertible into or exchangeable for common
stocks, and warrants or rights to purchase common stocks)
that, in the opinion of the Adviser, have long-term
appreciation possibilities.
Further information on portfolio investments and strategies
may be found under Portfolio Investments and Strategies in
this prospectus and in the Statement of Additional
Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest up
to 35% of its total assets in debt securities of corporate
and governmental issuers. Investment in debt securities is
limited to those that are rated within the four highest
grades (generally referred to as investment grade).
Securities in the fourth highest grade may possess
speculative characteristics, and changes in economic
conditions are more likely to affect the issuer's capacity to
pay interest and repay principal. If the rating of a
security held by the Fund is lost or reduced below investment
grade, the Fund is not required to dispose of the security--
the Adviser will, however, consider that fact in determining
whether the Fund should continue to hold the security. When
the Adviser deems a temporary defensive position advisable,
the Fund may invest, without limitation, in high-quality
fixed income securities, or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a
U.S. person, the Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) The Fund may invest in
sponsored or unsponsored ADRs. In addition to, or in lieu
of, such direct investment, a Fund may construct a synthetic
foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate
of exchange. Because of the availability of a variety of
highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may
offer greater liquidity than direct investment in foreign
currency debt instruments. In connection with the purchase
of foreign securities, the Fund may contract to purchase an
amount of foreign currency sufficient to pay the purchase
price of the securities at the settlement date. Such a
contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar
prior to the settlement date--this risk is in addition to the
risk that the value of the foreign security purchased may
decline. The Fund also may enter into foreign currency
contracts as a hedging technique to limit or reduce exposure
to currency fluctuations. In addition, the Fund may use
options and futures contracts, as described below, to limit
or reduce exposure to currency fluctuations. As of September
30, 1995, the Fund's holdings of foreign companies, as a
percentage of net assets, were 6.3% (1.2% in foreign
securities and 5.1% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information.
DERIVATIVES
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized
by underlying pools of mortgages or other receivables,
floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived"
from the performance of an underlying asset or a "benchmark"
such as a security index, an interest rate, or a currency.
The Fund does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes or other benchmarks.
The Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require
low margin deposits, the use of futures contracts involves a
high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of
time portfolio securities must be held. The turnover rate
may vary significantly from year to year. A high rate of
portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses.
(See Distributions and Income Taxes and Management of the
Fund.) The Fund is not intended to be an income-producing
investment, although it may produce varying amounts of
income.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements,/1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- ----------------------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- ----------------------
The policies summarized in the first three paragraphs under
this section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as
such, can be changed only with the approval of a "majority of
the outstanding voting securities" of the Fund as defined in
the Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is
designed for long-term investors who desire to participate in
the stock market with more investment risk and volatility
than the stock market in general, but with less investment
risk and volatility than aggressive capital appreciation
funds. The Fund seeks to reduce risk by investing in a
diversified portfolio, but this does not eliminate all risk.
It may, however, under abnormal circumstances, invest up to
25% of net assets in a particular industry or group of
industries. There can be no guarantee that the Fund will
achieve its objective.
Investment in foreign securities may represent a greater
degree of risk (including risk related to exchange rate
fluctuations, tax provisions, exchange and currency controls,
and expropriation of assets) than investment in securities of
domestic issuers. Other risks of foreign investing include
less complete financial information on issuers, less market
liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition
of exchange controls and withholding taxes on dividends, and
seizure or nationalization of investments owned by non-
residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's
assets and liabilities by the number of shares outstanding.
Net asset value will not be determined on days when the
Exchange is closed unless, in the judgment of the Board of
Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
NASDAQ is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually.
The Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the
sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital
gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and other
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund's investment portfolio and the business affairs of
the Fund and the Trust, subject to the direction of the Board
of Trustees. The Adviser is registered as an investment
adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
The Fund is managed by Erik P. Gustafson and Harvey B.
Hirschhorn, who became co-managers of the Fund in 1994 and
1995, respectively. Mr. Gustafson is a vice president of the
Adviser, having joined it in 1992. From 1989 to 1992 he was
an attorney with Fowler, White, Burnett, Hurley, Banick &
Strickroot. He holds a B.A. from the University of Virginia
(1985) and M.B.A. and J.D. degrees (1989) from Florida State
University. Mr. Hirschhorn is executive vice president and
director of research services of the Adviser, which he joined
in 1973. He received an A.B. degree from Rutgers College in
1971 and an M.B.A. from the University of Chicago in 1973,
and is a chartered financial analyst. As of December 31,
1995, Messrs. Gustafson and Hirschhorn were responsible for
managing $554 million and $512 million, respectively, in
mutual fund assets.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee, based on average net
assets, was .75% of the first $250 million, .70% of the next
$250 million, and .60% thereafter. The new contracts call
for a monthly management fee based on an annual rate of .60%
of the first $500 million, .55% of the next $500 million, and
.50% thereafter; and a monthly administrative fee based on an
annual rate of .15% of the first $500 million, .125% of the
next $500 million, and .10% thereafter. For the year ended
September 30, 1995, the fees for the Fund amounted to .74% of
average net assets.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular Fund shall
look only to the assets of the Trust or of the respective
Fund for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on
account of unsatisfied liability of another Fund of the Trust
is also believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to
circumstances in which the other Fund was unable to meet its
obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
______________
<PAGE>
STEIN ROE INVESTMENT TRUST
STEIN ROE CAPITAL OPPORTUNITIES FUND
THE FEBRUARY 1, 1996 DATE OF THIS DEFINED CONTRIBUTION PLANS
PROSPECTUS IS NULL AND VOID. THE NEW DATE OF THIS PROSPECTUS IS
JULY 1, 1996
SUPPLEMENT
INTERFUND LENDING PROGRAM. On June 18, 1996, the Fund's
shareholders approved changes in the Fund's investment
restrictions regarding borrowing and lending to permit the Fund to
participate in an interfund lending program with other mutual
funds managed by the Adviser. The third paragraph under
Restrictions on the Fund's Investments (page 6 of the Prospectus)
is revised to read as follows:
"The Fund may not make loans except that it may (1) purchase
money market instruments and enter into repurchase agreements;
(2) acquire publicly-distributed or privately-placed debt
securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending
program with other Stein Roe Funds. The Fund may not borrow
money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the Fund's aggregate borrowings
(including reverse repurchase agreements) nor the Fund's
aggregate loans at any one time may exceed 33 1/3% of the
value of its total assets."
SHORT SALES AGAINST THE BOX. The Fund may sell short
securities the Fund owns or has the right to acquire without
further consideration, a technique called selling short "against
the box." Short sales against the box may protect the Fund
against the risk of losses in the value of its portfolio
securities because any unrealized losses with respect to such
securities should be wholly or partly offset by a corresponding
gain in the short position. However, any potential gains in such
securities should be wholly or partially offset by a corresponding
loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or
otherwise, the Adviser does not want to sell the security. For a
more complete explanation, please refer to the Statement of
Additional Information.
ADDRESS CHANGE. The Statement of Additional Information
dated July 1, 1996 and the Fund's most recent financial statements
may be obtained without charge by writing to the Secretary of the
Trust at Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
or by calling 800-338-2550.
FINANCIAL HIGHLIGHTS. The per share data (for a share
outstanding throughout the period) contained in the section
Financial Highlights (page 3 of the Prospectus) is updated by
adding the following unaudited financial information for the six
months ended March 31, 1996:
NET ASSET VALUE, BEGINNING OF PERIOD....................$21.69
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income..................................(0.01)
Net realized and unrealized gains on investments..... 5.90
------
Total from investment operations.................... 5.89
------
DISTRIBUTIONS
Net investment income..................................(0.01)
Net realized capital gains........................... (0.99)
------
Total distributions................................ (1.00)
------
NET ASSET VALUE, END OF PERIOD..........................$26.58
------
------
Ratio of net expenses to average net assets.............*1.23%
Ratio of net investment income to average net assets ..*(0.22%)
Portfolio turnover rate....................................12%
Average commissions (per share)........................$0.0564
Total return............................................28.06%
Net assets, end of period (000 omitted)...............$696,081
__________________
*Annualized.
__________________________
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE CAPITAL OPPORTUNITIES FUND
The Fund seeks long-term capital appreciation by investing in
aggressive growth companies.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130. The Statement of
Additional Information contains information relating to other
series of the Stein Roe Investment Trust that may not be
available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...4
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 6
Risks and Investment Considerations.. . 6
How to Purchase Shares.............. ...7
How to Redeem Shares .................. 7
Net Asset Value ...................... .8
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................9
Organization and Description of Shares.10
For More Information ..................10
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administrative Fees 0.90%
12b-1 Fees None
Other Expenses 0.35%
-----
Total Fund Operating Expenses 1.25%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end
of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$13 $40 $69 $151
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in the Fund. The
Fund's transfer agency fees were changed effective May 1,
1995, and changes in management and administrative fees
became effective on September 1, 1995. The above table
illustrates expenses that would have been borne by investors
in the last fiscal year assuming that the fee changes had
been in effect for the entire year. (Also see Management of
the Fund--Fees and Expenses.) For purposes of the Example
above, the figures assume that the percentage amounts listed
for the Fund under Annual Fund Operating Expenses remain the
same in each of the periods; that all income dividends and
capital gain distributions are reinvested in additional Fund
shares; and that, for purposes of management fee breakpoints,
the Fund's net assets remain at the same level as in the most
recently completed fiscal year. The figures in the Example
are not necessarily indicative of past or future expenses,
and actual expenses may be greater or less than those shown.
Although information such as that shown in the Example and
Fee Table is useful in reviewing the Fund's expenses and in
providing a basis for comparison with other mutual funds, it
should not be used for comparison with other investments
using different assumptions or time periods. These examples
do not reflect any charges or expenses related to your
employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the periods shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.69 $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 15.79
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.10 0.03 0.03 0.03 0.05 0.06 0.11 0.06 0.01 0.02 0.01
Net realized and
unrealized gains
(losses) on investments 2.27 1.97 0.62 0.13 3.86 (4.72) 3.73 0.60 3.91 0.34 5.91
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 2.37 2.00 0.65 0.16 3.91 (4.66) 3.84 0.66 3.92 0.36 5.92
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.15) (0.10) (0.05) -- (0.05) (0.06) (0.08) (0.10) (0.04) (0.01) (0.02)
Net realized capital
gains -- (0.43) (3.36) -- (0.06) (2.54) (0.08) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.15) (0.53) (3.41) -- (0.11) (2.60) (0.16) (0.10) (0.04) (0.01) (0.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.95% 0.95% 0.95% *1.01% 1.09% 1.14% 1.18% 1.06% 1.06% 0.97% 1.05%
Ratio of net investment
income to average
net assets 0.94% 0.19% 0.18% *0.34% 0.42% 0.43% 1.19% 0.42% 0.09% 0.04% 0.08%
Portfolio turnover rate 90% 116% 133% 164% 245% 171% 69% 46% 55% 46% 60%
Total return 24.58% 16.77% 9.38% 1.51% 36.68% (37.51%) 53.51% 5.99% 34.01% 2.31% 37.46%
Net assets, end of
period (000 omitted) $176,099 $191,415 $171,973 $194,160 $272,805 $86,342 $129,711 $118,726 $153,101 $175,687 $242,381
</TABLE>
- ----------
*Annualized
(a) All per share amounts and Average Shares Outstanding
During Period on the debt table reflect a two-for-one
stock split effective August 25, 1995.
(b) For the periods indicated below, bank borrowing activity
was as follows:
Debt
outstanding Average debt Average shares Average
at end of outstanding outstanding debt per
Period period (in during period during period during
Ended thousands) (in thousands) (in thousands) period
- ------------ ----------- ------------ -------------- --------
12/31/85 -- 43 17,050 0.0026
12/31/86 -- 55 13,906 0.0039
12/31/87 -- 292 16,008 0.0183
9/30/88 -- 56 17,206 0.0033
9/30/89 -- 422 16,066 0.0263
9/30/90 200 1,042 15,944 0.0654
The Fund had no bank borrowings during any other periods.
__________________________
THE FUND
STEIN ROE CAPITAL OPPORTUNITIES FUND (the "Fund") is a no-
load, diversified "mutual fund." Mutual funds sell their own
shares to investors and use the money they receive to invest
in a portfolio of securities such as common stocks. A mutual
fund allows you to pool your money with that of other
investors in order to obtain professional investment
management. Mutual funds generally make it possible for you
to obtain greater diversification of your investments and
simplify your recordkeeping. The Fund does not impose
commissions or charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including equity funds, international funds,
taxable and tax-exempt bond funds, and money market funds.
To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call
800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by investing in
selected companies that, in the opinion of the Adviser, offer
opportunities for capital appreciation.
The Fund pursues its objective by investing in aggressive
growth companies. An aggressive growth company, in general,
is one that appears to have the ability to increase its
earnings at an above-average rate. These may include
securities of smaller emerging companies as well as
securities of well-seasoned companies of any size that offer
strong earnings growth potential. Such companies may benefit
from new products or services, technological developments, or
changes in management. Securities of smaller companies may
be subject to greater price volatility than securities of
larger companies. In addition, many smaller companies are
less well known to the investing public and may not be as
widely followed by the investment community. Although it
invests primarily in common stocks, the Fund may invest in
all types of equity securities, including preferred stocks
and securities convertible into common stocks. Further
information on portfolio investments and strategies may be
found under Portfolio Investments and Strategies in this
prospectus and in the Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in
debt securities of corporate and governmental issuers. The
Fund may invest up to 35% of its net assets in debt
securities, but does not expect to invest more than 5% of its
net assets in debt securities that are rated below investment
grade and that, on balance, are considered predominantly
speculative with respect to the issuer's capacity to pay
interest and repay principal according to the terms of the
obligation and, therefore, carry greater investment risk,
including the possibility of issuer default and bankruptcy.
When the Adviser deems a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities, or hold assets in cash or
cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a
U.S. person, the Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) The Fund may invest in
sponsored and unsponsored ADRs. In addition to, or in lieu
of, such direct investment, a Fund may construct a synthetic
foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate
of exchange. Because of the availability of a variety of
highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may
offer greater liquidity than direct investment in foreign
currency debt instruments. In connection with the purchase
of foreign securities, the Fund may contract to purchase an
amount of foreign currency sufficient to pay the purchase
price of the securities at the settlement date. Such a
contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar
prior to the settlement date--this risk is in addition to the
risk that the value of the foreign security purchased may
decline. The Fund also may enter into foreign currency
contracts as a hedging technique to limit or reduce exposure
to currency fluctuations. In addition, the Fund may use
options and futures contracts, as described below, to limit
or reduce exposure to currency fluctuations. As of September
30, 1995, the Fund's holdings of foreign companies, as a
percentage of net assets, were 2.5% (none in foreign
securities and 2.5% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information.
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized
by underlying pools of mortgages or other receivables,
floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived"
from the performance of an underlying asset or a "benchmark"
such as a security index, an interest rate, or a currency.
The Fund does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes or other benchmarks.
The Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require
low margin deposits, the use of futures contracts involves a
high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of
time portfolio securities must be held. The turnover rate
may vary significantly from year to year. At times, the Fund
may invest for short-term capital appreciation. Flexibility
of investment and emphasis on capital appreciation may
involve greater portfolio turnover than that of mutual funds
that have the objectives of income or maintenance of a
balanced investment position. A high rate of portfolio
turnover may result in increased transaction expenses and the
realization of capital gains and losses. (See Financial
Highlights and Distributions and Income Taxes.) The Fund is
not intended to be an income-producing investment, although
it may produce varying amounts of income.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements,/1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- ----------------------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- ----------------------
The policies summarized in the first three paragraphs under
this section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as
such, can be changed only with the approval of a "majority of
the outstanding voting securities" of the Fund as defined in
the Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is
designed for long-term investors who can accept the
fluctuations in portfolio value and other risks associated
with seeking long-term capital appreciation through
investments in common stocks. The Fund usually allocates its
investments among a number of different industries rather
than concentrating in a particular industry or group of
industries. It may, however, under abnormal circumstances,
invest up to 25% of net assets in a particular industry or
group of industries. There can be no guarantee that the Fund
will achieve its objective.
Investment in foreign securities may represent a greater
degree of risk (including risk related to exchange rate
fluctuations, tax provisions, exchange and currency controls,
and expropriation of assets) than investment in securities of
domestic issuers. Other risks of foreign investing include
less complete financial information on issuers, less market
liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition
of exchange controls and withholding taxes on dividends, and
seizure or nationalization of investments owned by non-
residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's
assets and liabilities by the number of shares outstanding.
Net asset value will not be determined on days when the
Exchange is closed unless, in the judgment of the Board of
Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
NASDAQ is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually.
The Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the
sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital
gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and other
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund's investment portfolio and the business affairs of
the Fund and the Trust, subject to the direction of the Board
of Trustees. The Adviser is registered as an investment
adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Gloria J. Santella and Eric S. Maddix are co-portfolio
managers of the Fund. Ms. Santella has been portfolio
manager since October, 1994, and had previously been co-
portfolio manager of the Fund since March, 1991. Ms.
Santella is a vice-president of the Trust and a senior vice
president of the Adviser, having been associated with the
Adviser since 1979. She received her B.B.A. from Loyola
University in 1979 and M.B.A. from the University of Chicago
in 1983. As of December 31, 1995, she managed $332 million
in mutual fund assets. Mr. Maddix became co-portfolio
manager of the Fund in 1996; he was previously associate
portfolio manager of the Fund. Mr. Maddix is a vice
president of the Adviser, which he joined in 1987. He
received his B.B.A. degree from Iowa State University in 1986
and his M.B.A. from the University of Chicago in 1992.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee was .75% of average net
assets. The new contracts call for a monthly management fee
based on an annual rate of .75% of the first $500 million,
.70% of the next $500 million, .65 of the next $500 million,
and .60% thereafter; and a monthly administrative fee based
on an annual rate of .15% of the first $500 million, .125% of
the next $500 million, .10% of the next $500 million, and
.075% thereafter. The fees paid by the Fund are higher than
those paid by most mutual funds. For the year ended
September 30, 1995, the fees for the Fund amounted to .75% of
average net assets.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular Fund shall
look only to the assets of the Trust or of the respective
Fund for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on
account of unsatisfied liability of another Fund of the Trust
is also believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to
circumstances in which the other Fund was unable to meet its
obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
_______________
<PAGE>
STEIN ROE INVESTMENT TRUST
STEIN ROE SPECIAL FUND
THE FEBRUARY 1, 1996 DATE OF THIS DEFINED CONTRIBUTION PLANS
PROSPECTUS IS NULL AND VOID. THE NEW DATE OF THIS PROSPECTUS IS
JULY 1, 1996
SUPPLEMENT
INTERFUND LENDING PROGRAM. On June 18, 1996, the Fund's
shareholders approved changes in the Fund's investment
restrictions regarding borrowing and lending to permit the Fund to
participate in an interfund lending program with other mutual
funds managed by the Adviser. The third paragraph under
Restrictions on the Fund's Investments (page 6 of the Prospectus)
is revised to read as follows:
"The Fund may not make loans except that it may (1) purchase
money market instruments and enter into repurchase agreements;
(2) acquire publicly-distributed or privately-placed debt
securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending
program with other Stein Roe Funds. The Fund may not borrow
money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the Fund's aggregate borrowings
(including reverse repurchase agreements) nor the Fund's
aggregate loans at any one time may exceed 33 1/3% of the
value of its total assets."
SHORT SALES AGAINST THE BOX. The Fund may sell short
securities the Fund owns or has the right to acquire without
further consideration, a technique called selling short "against
the box." Short sales against the box may protect the Fund
against the risk of losses in the value of its portfolio
securities because any unrealized losses with respect to such
securities should be wholly or partly offset by a corresponding
gain in the short position. However, any potential gains in such
securities should be wholly or partially offset by a corresponding
loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or
otherwise, the Adviser does not want to sell the security. For a
more complete explanation, please refer to the Statement of
Additional Information.
FEE TABLE. For the 12 months ending June 30, 1997, the
Adviser has agreed to reduce its fee by subtracting 0.5% from the
applicable annual rate of management fee. Given this reduction,
the Fee Table is amended as follows:
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases........................None
Sales Load Imposed on Reinvested Dividends.............None
Deferred Sales Load....................................None
Redemption Fees........................................None
Exchange Fees..........................................None
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets; after fee waiver)
Management and Administrative Fees (after fee waiver).0.79%
12b-1 Fees.............................................None
Other Expenses........................................0.32%
Total Fund Operating Expenses (after fee waiver)......1.11%
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$11 $36 $62 $136
Absent that waiver, the Management and Administrative Fees would
have been 0.84% and Total Fund Operating Expenses would have been
1.16%.
ADDRESS CHANGE. The Statement of Additional Information
dated July 1, 1996 and the Fund's most recent financial statements
may be obtained without charge by writing to the Secretary of the
Trust at Suite 3200, One South Wacker Drive, Chicago, Illinois 60606,
or by calling 800-338-2550.
FINANCIAL HIGHLIGHTS. The per share data (for a share
outstanding throughout the period) contained in the section
Financial Highlights (page 3 of the Prospectus) is updated by
adding the following unaudited financial information for the six
months ended March 31, 1996:
NET ASSET VALUE, BEGINNING OF PERIOD..................$25.26
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................................0.02
Net realized and unrealized gains on investments... 2.16
------
Total from investment operations................. 2.18
------
DISTRIBUTIONS
Net investment income................................(0.11)
Net realized capital gains......................... (1.91)
------
Total distributions.............................. (2.02)
------
NET ASSET VALUE, END OF PERIOD........................$25.42
------
------
Ratio of net expenses to average net assets...........*1.19%
Ratio of net investment income to average net assets..*0.12%
Portfolio turnover rate..................................17%
Average commissions (per share)......................$0.0500
Total return...........................................9.41%
Net assets, end of period (000 omitted)...........$1,123,079
_______________
*Annualized.
___________________
<PAGE>
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE SPECIAL FUND
The Fund seeks capital appreciation by investing in
securities that are considered to have limited downside risk
relative to their potential for above-average growth,
including securities of undervalued, underfollowed, or out-
of-favor companies.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130. The Statement of
Additional Information contains information relating to other
series of the Stein Roe Investment Trust that may not be
available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...4
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 6
Risks and Investment Considerations.. . 6
How to Purchase Shares.............. ...7
How to Redeem Shares .................. 7
Net Asset Value ...................... .8
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................9
Organization and Description of Shares.10
For More Information ..................10
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administrative Fees 0.84%
12b-1 Fees None
Other Expenses 0.32%
-----
Total Fund Operating Expenses 1.16%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end
of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$12 $37 $64 $142
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in the Fund. The
Fund's transfer agency fees were changed effective May 1,
1995, and changes in management and administrative fees
became effective on September 1, 1995. The above table
illustrates expenses that would have been borne by investors
in the last fiscal year assuming that the fee changes had
been in effect for the entire year. (Also see Management of
the Fund--Fees and Expenses.) For purposes of the Example
above, the figures assume that the percentage amounts listed
for the Fund under Annual Fund Operating Expenses remain the
same in each of the periods; that all income dividends and
capital gain distributions are reinvested in additional Fund
shares; and that, for purposes of management fee breakpoints,
the Fund's net assets remain at the same level as in the most
recently completed fiscal year. The figures in the Example
are not necessarily indicative of past or future expenses,
and actual expenses may be greater or less than those shown.
Although information such as that shown in the Example and
Fee Table is useful in reviewing the Fund's expenses and in
providing a basis for comparison with other mutual funds, it
should not be used for comparison with other investments
using different assumptions or time periods. These examples
do not reflect any charges or expenses related to your
employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the periods shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.88 $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.25 0.35 0.23 0.14 0.36 0.42 0.34 0.21 0.17 0.15 0.13
Net realized and
unrealized gains
(losses) on investments 4.01 2.33 0.12 2.16 5.58 (2.10) 4.55 1.50 5.31 0.33 3.05
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 4.26 2.68 0.35 2.30 5.94 (1.68) 4.89 1.71 5.48 0.48 3.18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investmentincome (0.19) (0.34) (0.57) (0.01) (0.21) (0.39) (0.34) (0.37) (0.18) (0.21) (0.15)
Net realized capital
gains (0.54) (3.80) (3.90) -- (0.06) (2.08) (1.32) (0.31) (1.16) (1.77) (1.31)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.73) (4.14) (4.47) (0.01) (0.27) (2.47) (1.66) (0.68) (1.34) (1.98) (1.46)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.92% 0.92% 0.96% *0.99% 0.96% 1.02% 1.04% 0.99% 0.97% 0.96% 1.02%
Ratio of net
investment income to
average net assets 2.07% 1.75% 1.32% *1.31% 2.12% 2.33% 2.11% 0.99% 0.92% 0.91% 0.56%
Portfolio turnoverrate 96% 116% 103% 42% 85% 70% 50% 40% 42% 58% 41%
Total return 29.41% 14.70% 4.27% 17.94% 40.00% (8.78%) 32.18% 8.96% 27.35% 2.02% 14.60%
Net assets, end of
period (000 omitted) $278,082 $253,693 $187,997 $224,628 $322,056 $361,065 $587,259 $626,080 $1,076,818 $1,243,885 $1,201,469
</TABLE>
- -----------
*Annualized
(a) For the period indicated below, bank borrowing activity
was as follows:
Debt
outstanding Average debt Average shares Average
at end of outstanding outstanding debt per
Period period (in during period during period during
Ended thousands) (in thousands) (in thousands) period
- ------------ ----------- ------------ -------------- --------
12/31/86 -- 203 15,251 0.0133
The Fund had no bank borrowings during any other periods.
__________________________
THE FUND
STEIN ROE SPECIAL FUND (the "Fund") is a no-load, diversified
"mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a
portfolio of securities such as common stocks. A mutual fund
allows you to pool your money with that of other investors in
order to obtain professional investment management. Mutual
funds generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping. The Fund does not impose commissions or
charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including equity funds, international funds,
taxable and tax-exempt bond funds, and money market funds.
To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call
800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is to invest in securities
selected for capital appreciation. Particular emphasis is
placed on securities that are considered to have limited
downside risk relative to their potential for above-average
growth--including securities of undervalued, underfollowed or
out-of-favor companies, and companies that are low-cost
producers of goods or services, financially strong, or run by
well-respected managers. The Fund may invest in securities
of seasoned, established companies that appear to have
appreciation potential, as well as securities of relatively
small, new companies. In addition, it may invest in
securities with limited marketability; new issues of
securities; securities of companies that, in the Adviser's
opinion, will benefit from management change, new technology,
new product or service development, or change in demand; and
other securities that the Adviser believes have capital
appreciation possibilities. However, the Fund does not
currently intend to invest, nor has it invested in the past
fiscal year, more than 5% of its net assets in any of these
types of securities. Securities of smaller, newer companies
may be subject to greater price volatility than securities of
larger, well-established companies. In addition, many
smaller companies are less well known to the investing public
and may not be as widely followed by the investment
community. Although the Fund invests primarily in common
stocks, it may also invest in other equity-type securities,
including preferred stocks and securities convertible into
equity securities. Further information on portfolio
investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the
Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in
debt securities of corporate and governmental issuers. The
Fund may invest up to 35% of its net assets in debt
securities, but does not expect to invest more than 5% of its
net assets in debt securities that are rated below investment
grade and that, on balance, are considered predominantly
speculative with respect to the issuer's capacity to pay
interest and repay principal according to the terms of the
obligation and, therefore, carry greater investment risk,
including the possibility of issuer default and bankruptcy.
When the Adviser deems a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities, or hold assets in cash or
cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a
U.S. person, the Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) The Fund may invest in
sponsored and unsponsored ADRs. In addition to, or in lieu
of, such direct investment, a Fund may construct a synthetic
foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate
of exchange. Because of the availability of a variety of
highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may
offer greater liquidity than direct investment in foreign
currency debt instruments. In connection with the purchase
of foreign securities, the Fund may contract to purchase an
amount of foreign currency sufficient to pay the purchase
price of the securities at the settlement date. Such a
contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar
prior to the settlement date--this risk is in addition to the
risk that the value of the foreign security purchased may
decline. The Fund also may enter into foreign currency
contracts as a hedging technique to limit or reduce exposure
to currency fluctuations. In addition, the Fund may use
options and futures contracts, as described below, to limit
or reduce exposure to currency fluctuations. As of September
30, 1995, the Fund's holdings of foreign companies, as a
percentage of net assets, were 7.5% (6.0% in foreign
securities and 1.5% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information.
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized
by underlying pools of mortgages or other receivables,
floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived"
from the performance of an underlying asset or a "benchmark"
such as a security index, an interest rate, or a currency.
The Fund does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes or other benchmarks.
The Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require
low margin deposits, the use of futures contracts involves a
high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of
time portfolio securities must be held. The turnover rate
may vary significantly from year to year. At times, the Fund
may invest for short-term capital appreciation. Flexibility
of investment and emphasis on capital appreciation may
involve greater portfolio turnover than that of mutual funds
that have the objectives of income or maintenance of a
balanced investment position. A high rate of portfolio
turnover may result in increased transaction expenses and the
realization of capital gains and losses. (See Financial
Highlights and Distributions and Income Taxes.) The Fund is
not intended to be an income-producing investment, although
it may produce varying amounts of income.
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements,/1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- ----------------------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- ----------------------
The policy described in the third paragraph of this section
and the policy with respect to concentration of investments
in any one industry described under Risks and Investment
Considerations are fundamental policies and, as such, can be
changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is
designed for long-term investors who desire to participate in
the stock market with more investment risk and volatility
than the stock market in general, but with less investment
risk and volatility than aggressive capital appreciation
funds. The Fund usually allocates its investments among a
number of different industries rather than concentrating in a
particular industry or group of industries. It may, however,
under abnormal circumstances, invest up to 25% of net assets
in a particular industry or group of industries. (See How
the Fund Invests.) There can be no guarantee that the Fund
will achieve its objective.
Investment in foreign securities may represent a greater
degree of risk (including risk related to exchange rate
fluctuations, tax provisions, exchange and currency controls,
and expropriation of assets) than investment in securities of
domestic issuers. Other risks of foreign investing include
less complete financial information on issuers, less market
liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition
of exchange controls and withholding taxes on dividends, and
seizure or nationalization of investments owned by non-
residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's
assets and liabilities by the number of shares outstanding.
Net asset value will not be determined on days when the
Exchange is closed unless, in the judgment of the Board of
Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
NASDAQ is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually.
The Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the
sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital
gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and other
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund's investment portfolio and the business affairs of
the Fund and the Trust, subject to the direction of the Board
of Trustees. The Adviser is registered as an investment
adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
E. Bruce Dunn and Richard B. Peterson have been co-portfolio
managers of the Fund since 1991. Each is a vice-president of
the Trust and a senior vice president of the Adviser. Mr.
Dunn has been associated with the Adviser since 1964. He
received his A.B. degree from Yale University in 1956 and his
M.B.A. from Harvard University in 1958 and is a chartered
investment counselor. Mr. Peterson, who began his investment
career at Stein Roe & Farnham in 1965 after graduating with a
B.A. from Carleton College in 1962 and the Woodrow Wilson
School at Princeton University in 1964 with a Masters in
Public Administration, rejoined the Adviser in 1991 after 15
years of equity research and portfolio management experience
with State Farm Investment Management Corporation. David P.
Brady has been associate portfolio manager of Special Fund
since 1995. A vice president of the Adviser and the Trust,
Mr. Brady joined the Adviser in 1993, and was an equity
investment analyst with State Farm Mutual Automobile
Insurance Company from1986 to 1993. As of December 31, 1995,
Messrs. Dunn and Peterson were responsible for co-managing
$1.3 billion in mutual fund assets.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee was .75% of average net
assets. The new contracts call for a monthly management fee
based on an annual rate of .75% of the first $500 million,
.70% of the next $500 million, .65 of the next $500 million,
and .60% thereafter; and a monthly administrative fee based
on an annual rate of .15% of the first $500 million, .125% of
the next $500 million, .10% of the next $500 million, and
.075% thereafter. The fees paid by the Fund are higher than
those paid by most mutual funds. For the year ended
September 30, 1995, the fees for the Fund amounted to .76% of
average net assets.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular Fund shall
look only to the assets of the Trust or of the respective
Fund for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on
account of unsatisfied liability of another Fund of the Trust
is also believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to
circumstances in which the other Fund was unable to meet its
obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
________________
<PAGE>
STEIN ROE INVESTMENT TRUST
STEIN ROE YOUNG INVESTOR FUND
THE APRIL 17, 1996 DATE OF THIS DEFINED CONTRIBUTION PLANS
PROSPECTUS IS NULL AND VOID. THE NEW DATE OF THIS PROSPECTUS IS
JULY 1, 1996
SUPPLEMENT
INTERFUND LENDING PROGRAM. On June 18, 1996, the Fund's
shareholders approved changes in the Fund's investment
restrictions regarding borrowing and lending to permit the Fund to
participate in an interfund lending program with other mutual
funds managed by the Adviser. The fourth paragraph under
Restrictions on the Fund's Investments (page 5 of the Prospectus)
is revised to read as follows:
"The Fund may not make loans except that it may (1) purchase
money market instruments and enter into repurchase agreements;
(2) acquire publicly-distributed or privately-placed debt
securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending
program with other Stein Roe Funds. The Fund may not borrow
money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the Fund's aggregate borrowings
(including reverse repurchase agreements) nor the Fund's
aggregate loans at any one time may exceed 33 1/3% of the
value of its total assets."
ADDRESS CHANGE. The Statement of Additional Information
dated July 1, 1996 and the Fund's most recent financial statements
may be obtained without charge by writing to the Secretary of the
Trust at Suite 3200, One South Wacker Drive, Chicago, Illinois 60606,
or by calling 800-338-2550.
FINANCIAL HIGHLIGHTS. The per share data (for a share
outstanding throughout the period) contained in the section
Financial Highlights (page 3 of the Prospectus) is updated by
adding the following unaudited financial information for the six
months ended March 31, 1996:
NET ASSET VALUE, BEGINNING OF PERIOD......................$14.29
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.....................................0.04
Net realized and unrealized gains on investments....... 1.96
------
Total from Investment Operations........................2.00
------
DISTRIBUTIONS
Net investment income....................................(0.05)
Net realized capital gains............................. (0.51)
------
Total Distributions.................................. (0.56)
------
NET ASSET VALUE, END OF PERIOD............................$15.73
------
------
Ratio of net expenses to average net assets (a)...........*1.10%
Ratio of net investment income to average net assets (b)..*0.47%
Portfolio turnover rate......................................44%
Average commissions (per share)..........................$0.0632
Total return (b)..........................................14.39%
Net assets, end of period (000 omitted)..................$68,311
_______________
*Annualized.
(a) If the Fund had paid all of its expenses and there had been
no reimbursement of expenses by the Adviser, this ratio would
have been 1.68% for the period ended March 31, 1996.
(b) Computed giving effect to the Adviser's expense limitation
undertaking.
____________________________
<PAGE>
[STEIN ROE FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE YOUNG INVESTOR FUND
The Fund seeks long-term capital appreciation. The Fund invests
in securities of companies that affect the lives of children or
teenagers. The Fund is also intended to be a fun, educational
experience for young investors and their parents.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST, an open-end management investment
company.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated April 17, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at the address shown on the back cover or by calling the
Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is April 17, 1996.
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...3
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 5
Risks and Investment Considerations.. . 6
How to Purchase Shares.............. ...7
How to Redeem Shares .................. 7
Net Asset Value ...................... .7
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................8
Organization and Description of Shares..9
For More Information ..................10
<PAGE>
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after expense
reimbursement; as a percentage of average net assets)
Management and Administrative Fees (after
expense reimbursement) None
12b-1 Fees None
Other Expenses (after expense reimbursement) 1.25%
-----
Total Fund Operating Expenses (after expense
reimbursement) 1.25%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$13 $40 $69 $151
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year, except that it
has been adjusted to reflect changes in the Fund's transfer agency
services and fees. From time to time, the Adviser may voluntarily
absorb certain expenses of the Fund. Stein Roe has agreed to
voluntarily waive its management fee and absorb the expenses of
the Fund to the extent that such fees and expenses on an
annualized basis exceed 1.25% of its annual average net assets
from February 1, 1996 through January 31, 1997, subject to earlier
termination by the Adviser on 30 days' notice (previously, Stein
Roe had undertaken to reimburse the Fund for expenses in excess of
0.99%). Any such absorption will temporarily lower the Fund's
overall expense ratio and increase its overall return to
investors. Absent the expense undertaking, Management and
Administrative Fees, Other Expenses, and Total Fund Operating
Expenses would have been 0.76%, 2.11%, and 2.87%, respectively.
(Also see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods; that all income
dividends and capital gain distributions are reinvested in
additional Fund shares; and that, for purposes of management fee
breakpoints, net assets remain at the same level as in the most
recently completed fiscal year.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing the Fund's expenses
and in providing a basis for comparison with other mutual funds,
it should not be used for comparison with other investments using
different assumptions or time periods. These examples do not
reflect any charges or expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis for the period shown and has been audited by
Arthur Andersen LLP, independent public accountants. The
auditors' report was unqualified. The table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
Period Ended Year Ended
Sept. 30, Sept. 30,
1994 (a) 1995
-------------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.24
------ -------
Income from investment operations
Net investment income 0.03 0.06
Net realized and unrealized gains on investments 0.21 4.07
Total from investment operations 0.24 4.13
------ -------
Distributions from net investment income -- (0.08)
------ -------
NET ASSET VALUE, END OF PERIOD $10.24 $14.29
------ -------
------ -------
Ratio of net expenses to average net assets (b) *0.99% 0.99%
Ratio of net investment income to average
net assets (c) *1.07% 0.47%
Portfolio turnover rate **12% 55%
Total return **2.40% 40.58%
Net assets, end of period (000 omitted) $8,176 $31,401
________________________________
*Annualized.
**Not annualized.
(a) From commencement of operations on April 29, 1994.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the investment adviser, this
ratio would have been 4.58% for the period ended September 30,
1994 and 2.87% for the year ended September 30, 1995.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
__________________________
THE FUND
STEIN ROE YOUNG INVESTOR FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a portfolio
of securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the Stein Roe Investment Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated ("Stein Roe") provides investment
advisory, administrative, and bookkeeping and accounting services
to the Fund. Stein Roe also manages and provides investment
advisory services for several other no-load mutual funds with
different investment objectives, including equity funds,
international funds, taxable and tax-exempt bond funds, and money
market funds. To obtain prospectuses and other information on
opening a regular account in any of those mutual funds, please
call 800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is long-term capital appreciation.
It seeks to achieve its objective by investing primarily in common
stocks and other equity-type securities that, in the opinion of
Stein Roe, have long-term appreciation potential.
Under normal circumstances, at least 65% of the Fund's total
assets will be invested in securities of companies that, in the
opinion of Stein Roe, directly or through one or more
subsidiaries, affect the lives of children or teenagers. Such
companies may include companies that produce products or services
that children or teenagers use, are aware of, or could potentially
have an interest in.
Although the Fund invests primarily in common stocks and other
equity-type securities (such as preferred stocks, securities
convertible into or exchangeable for common stocks, and warrants
or rights to purchase common stocks), it may invest up to 35% of
its total assets in debt securities. The Fund may invest in
securities of smaller emerging companies as well as securities of
well-seasoned companies of any size. Smaller companies, however,
involve higher risks in that they typically have limited product
lines, markets, and financial or management resources. In
addition, the securities of smaller companies may trade less
frequently and have greater price fluctuation than larger
companies, particularly those operating in countries with
developing markets. The Fund may also employ investment
techniques described elsewhere in this prospectus. (See Risks and
Investment Considerations and Fees and Expenses.)
In addition to the Fund's investment objective and policies, the
Fund also has an educational objective. The Fund will seek to
educate its shareholders by providing educational materials
regarding personal finance and investing as well as materials on
the Fund and its portfolio holdings.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in debt
securities. A debt security is an obligation of a borrower to
make payments of principal and interest to the holder of the
security. To the extent the Fund invests in debt securities, such
holdings will be subject to interest rate risk and credit risk.
Interest rate risk is the risk that the value of a portfolio will
fluctuate in response to changes in interest rates. Generally,
the debt component of a portfolio will tend to decrease in value
when interest rates rise and increase in value when interest rates
fall. Credit risk is the risk that an issuer will be unable to
make principal and interest payments when due. Investments in
debt securities are limited to those that are rated within the
four highest grades (generally referred to as "investment grade")
assigned by a nationally recognized statistical rating
organization. Investments in unrated debt securities are limited
to those deemed to be of comparable quality by Stein Roe.
Securities rated within the fourth highest grade may possess
speculative characteristics. If the rating of a security held by
the Fund is lost or reduced below investment grade, the Fund is
not required to dispose of the security--Stein Roe will, however,
consider that fact in determining whether the Fund should continue
to hold the security. When Stein Roe considers a temporary
defensive position advisable, the Fund may invest without
limitation in high-quality fixed income securities, or hold assets
in cash or cash equivalents.
FOREIGN SECURITIES.
The Fund may invest up to 25% of its total assets in foreign
securities. (See Risks and Investment Considerations.) In
addition to, or in lieu of, such direct investment, the Fund may
construct a synthetic foreign position by (a) purchasing a debt
instrument denominated in one currency, generally U.S. dollars;
and (b) concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar prior to
the settlement date--this risk is in addition to the risk that the
value of the foreign security purchased may decline.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may make loans of its portfolio securities to broker-
dealers and banks and enter into reverse repurchase agreements
subject to certain restrictions described in the Statement of
Additional Information. The Fund may invest in securities
purchased on a when-issued or delayed-delivery basis. Although
the payment terms of these securities are established at the time
the Fund enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons.
DERIVITIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional, exchange-traded and non-exchange-traded options,
futures contracts, futures options, forward contracts, securities
collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each case,
the value of the instrument or security is "derived" from the
performance of an underlying asset or a "benchmark" such as a
security index, or an interest rate. The Fund does not expect to
invest more than 5% of its net assets in any type of Derivative
except for options, futures contracts, and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on Stein Roe's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund may: (1)
purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes, or other benchmarks. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund foregoes, during the option's
life, the opportunity to profit from increases in market value of
the security covering the call option above the sum of the premium
and the exercise price of the call. There can be no assurance
that a liquid market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
The Fund will not invest more than 25% of its total assets (at the
time of investment) in the securities of companies in any one
industry.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets. The Board of Trustees has called a meeting of the
shareholders of the Fund on June 18, 1996, to consider, among
other things, a proposal to amend the Fund's fundamental
investment restrictions to allow it to engage in borrowing and
lending transactions with affiliated Funds in an "interfund
lending program."
The Fund may invest in repurchase agreements, /1/ provided that it
will not invest more than 5% of its net assets in repurchase
agreements maturing in more than seven days, and any other
illiquid securities. An investment in illiquid securities could
involve relatively greater risks and costs to the Fund.
- --------------------
/1/ A repurchase agreement involves a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
- --------------------
The investment restrictions described in the first three
paragraphs of this section are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940. The investment objective is non-fundamental
and, as such, may be changed by the Board of Trustees without
shareholder approval. Any such change may result in the Fund
having an investment objective different from the objective the
shareholder considered appropriate at the time of investment in
the Fund. All of the investment restrictions are set forth in the
Statement of Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund is designed
for long-term investors who desire to participate in the stock
market and places an emphasis on companies that appeal to young
investors. These investors can accept more investment risk and
volatility than the stock market in general but want less
investment risk and volatility than aggressive capital
appreciation funds. Of course, there can be no guarantee that the
Fund will achieve its objective. The Fund is also designed to be
a fun, educational experience for young investors and their
parents.
While the Fund seeks to reduce risk by investing in a diversified
portfolio, diversification does not eliminate all risk. The Fund
will not, however, invest more than 25% of the total value of its
assets (at the time of investment) in the securities of companies
in any one industry. By investing in companies whose products or
services appeal to young investors, the Fund emphasizes various
consumer goods sectors.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. Accordingly, the portfolio
turnover rate may vary significantly from year to year, but is not
expected to exceed 100% under normal market conditions. A high
rate of portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses. (See
Distributions and Income Taxes.) The Fund is not intended to be
an income-producing investment, although it may produce income.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, less market liquidity, more market
volatility, less developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER/FEEDER OPTION.
Rather than investing in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by Stein Roe for
investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by Stein Roe in substantially the same manner as
the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., Central time) by dividing
the difference between the values of the Fund's assets and
liabilities by the number of shares outstanding. Net asset value
will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, the net asset value of the
Fund should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
__________________________
DISTRIBUTIONS AND INCOME TAXES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment of dividends and
capital gains), plus or minus the change in the net asset value
per share for a given period. A total return percentage may be
calculated by dividing the value of a share at the end of the
period (including reinvestment of distributions) by the value of
the share at the beginning of the period and subtracting one. For
a given period, an average annual total return may be calculated
by finding the average annual compounded rate that would equate a
hypothetical $1,000 investment to the ending redeemable value.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and additional information
about the trustees and officers. Stein Roe & Farnham
Incorporated, One South Wacker Drive, Chicago, Illinois 60606, is
responsible for managing the investment portfolio and the business
affairs of the Fund and the Trust, subject to the direction of the
Board. Stein Roe is registered as an investment adviser under the
Investment Advisers Act of 1940.
Stein Roe (and its predecessor) has advised and managed mutual
funds since 1949. Stein Roe is a wholly owned indirect subsidiary
of Liberty Financial Companies, Inc. ("Liberty Financial"), which
in turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
PORTFOLIO MANAGERS.
The portfolio managers of the Fund are Erik P. Gustafson, David P.
Brady and Arthur J. McQueen, who are vice presidents of Stein Roe.
Mr. Gustafson became portfolio manager of the Fund in February
1995, Mr. Brady in March 1995, and Mr. McQueen in April 1996. As
of December 31, 1995, Messrs. Gustafson and Brady were responsible
for co-managing $554 million and $42 million in mutual fund
assets, respectively.
Before joining Stein Roe, Mr. Gustafson was an attorney with
Fowler, White, Burnett, Hurley, Banick & Strickroot from 1989 to
1992. He holds a B.A. from the University of Virginia (1985) and
M.B.A. and J.D. degrees (1989) from Florida State University. Mr.
Brady, who joined Stein Roe in 1993, was an equity investment
analyst with State Farm Mutual Automobile Insurance Company from
1986 to 1993. A chartered financial analyst, Mr. Brady earned a
B.S. in Finance, graduating Magna Cum Laude, from the University
of Arizona in 1986, and an M.B.A. from the University of Chicago
in 1989. Mr. McQueen earned a B.S. from Villanova University
(1980) and an M.B.A. from the Wharton School of the University of
Pennsylvania (1987). Mr. McQueen has been employed by Stein Roe
as an equity analyst since 1987 and was previously employed by
Citibank and GTE.
FEES AND EXPENSES.
The Fund's investment advisory agreement with Stein Roe was
replaced on September 1, 1995, with an administrative agreement
and a management agreement. Under the terminated advisory
agreement, the annual fee was .75% of the first $250 million of
average net assets, .70% of the next $250 million, and .60%
thereafter. The new fee schedule calls for a management fee of
.60% of the first $500 million, .55% of the next $500 million, and
.50% thereafter; and an administrative fee of .20% of the first
$500 million, .15% of the next $500 million, and .125% thereafter.
For the fiscal year ended September 30, 1995, Stein Roe reimbursed
the Fund $322,803, resulting in a net payment by Stein Roe of
$191,821. Please refer to Fee Table for a description of the
expense limitation.
Because the Fund also has as an objective being an educational
experience for investors, the Fund's non-advisory expenses may be
higher than other mutual funds due to regular educational and
other reporting to shareholders.
Under a separate agreement with the Trust, Stein Roe provides
certain accounting and bookkeeping services to the Fund, including
computation of its net asset value and calculation of its net
income and capital gains and losses on disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
Stein Roe places the orders for the purchase and sale of portfolio
securities and options and futures transactions for the Fund. In
doing so, Stein Roe seeks to obtain the best combination of price
and execution, which involves a number of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by Stein Roe,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust is
also believed to be remote, because it would be limited to claims
to which the disclaimer did not apply and to circumstances in
which the other series was unable to meet its obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
______________________
<PAGE> 1
Statement of Additional Information Dated July 1, 1996
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60680
800-338-2550
GROWTH AND INCOME FUNDS
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
GROWTH FUNDS
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
The Funds listed above are series of the Stein Roe Investment
Trust (the "Trust"). Each series of the Trust represents shares
of beneficial interest in a separate portfolio of securities and
other assets, with its own objectives and policies. This
Statement of Additional Information is not a prospectus, but
provides additional information that should be read in conjunction
with the Funds' prospectus dated July 1, 1996, and any supplements
thereto ("Prospectus"). The Prospectus may be obtained at no
charge by telephoning 800-338-2550.
TABLE OF CONTENTS
General Information and History........................2
Investment Policies....................................3
Growth & Income Fund................................3
Balanced Fund.......................................4
Growth Stock Fund...................................4
Special Fund........................................4
Special Venture Fund................................5
Capital Opportunities Fund..........................5
Portfolio Investments and Strategies...................5
Investment Restrictions...............................21
Additional Investment Considerations..................24
Purchases and Redemptions.............................25
Management............................................26
Financial Statements..................................30
Principal Shareholders................................30
Investment Advisory Services..........................31
Distributor...........................................34
Transfer Agent........................................34
Custodian.............................................34
Independent Public Accountants........................35
Portfolio Transactions................................35
Additional Income Tax Considerations..................37
Investment Performance................................38
Appendix--Ratings.....................................44
<PAGE>
GENERAL INFORMATION AND HISTORY
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory services and administrative services to the
Funds. Currently eight series of the Trust are authorized and
outstanding.
As used herein, "Growth & Income Fund," "Balanced Fund,"
"Growth Stock Fund," "Special Fund," "Special Venture Fund," and
"Capital Opportunities Fund" refer to the series of the Trust
designated Stein Roe Growth & Income Fund, Stein Roe Balanced
Fund, Stein Roe Growth Stock Fund, Stein Roe Special Fund, Stein
Roe Special Venture Fund, and Stein Roe Capital Opportunities
Fund, respectively, and are referred to collectively as the
"Funds." The name of Stein Roe Total Return Fund was changed to
Stein Roe Balanced Fund on April 17, 1996. Prior to February 1,
1996, Stein Roe Growth & Income Fund was named SteinRoe Prime
Equities, Stein Roe Total Return Fund was named SteinRoe Total
Return Fund, Stein Roe Growth Stock Fund was named SteinRoe Growth
Stock Fund, Stein Roe Special Fund was named SteinRoe Special
Fund, Stein Roe Special Venture Fund was named SteinRoe Special
Venture Fund, and Stein Roe Capital Opportunities Fund was named
SteinRoe Capital Opportunities Fund. Growth Stock Fund was named
SteinRoe Stock Fund prior to February 1, 1995. The name of the
Trust was changed on February 1, 1996 from SteinRoe Investment
Trust to Stein Roe Investment Trust.
Each share of a series is entitled to participate pro rata in
any dividends and other distributions declared by the Board on
shares of that series, and all shares of a series have equal
rights in the event of liquidation of that series.
Each whole share (or fractional share) outstanding on the
record date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the close
of business on the record date (for example, a share having a net
asset value of $10.50 would be entitled to 10.5 votes). As a
business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for
purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory
contract. If requested to do so by the holders of at least 10% of
the Trust's outstanding shares, the Trust will call a special
meeting for the purpose of voting upon the question of removal of
a trustee or trustees and will assist in the communications with
other shareholders as if the Trust were subject to Section 16(c)
of the Investment Company Act of 1940. All shares of all series
of the Trust are voted together in the election of trustees. On
any other matter submitted to a vote of shareholders, shares are
voted in the aggregate and not by individual series, except that
shares are voted by individual series when required by the
Investment Company Act of 1940 or other applicable law, or when
the Board of Trustees determines that the matter affects only the
interests of one or more series, in which case shareholders of the
unaffected series are not entitled to vote on such matters.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE
Each Fund may in the future seek to achieve its objective by
pooling its assets with assets of other mutual funds managed by
the Adviser for investment in another mutual fund having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The Adviser is expected to manage any such mutual
fund in which a Fund would invest. Such investment would be
subject to determination by the Trustees that it was in the best
interests of the Fund and its shareholders, and shareholders would
receive advance notice of any such change.
INVESTMENT POLICIES
In pursuing its respective objective, each Fund will invest
as described below and may employ the investment techniques
described in its Prospectus and elsewhere in this Statement of
Additional Information. Investments and strategies that are
common to two or more Funds are described under Portfolio
Investments and Strategies. Each Fund's investment objective is a
non-fundamental policy and may be changed by the Board of Trustees
without the approval of a "majority of the outstanding voting
securities" /1/ of that Fund.
GROWTH & INCOME FUND
This Fund's investment objective is to provide both growth of
capital and current income. It is designed for investors seeking
a diversified portfolio of securities that offers the opportunity
for long-term growth of capital while also providing a steady
stream of income.
In seeking to meet this objective, the Fund invests primarily
in well-established companies whose common stocks are believed to
have both the potential to appreciate in value and to pay
dividends to shareholders.
Although it may invest in a broad range of securities
(including common stocks, preferred stocks, securities convertible
into or exchangeable for common stocks, and warrants or rights to
purchase common stocks), normally the Fund will emphasize
investments in equity securities of companies having market
capitalizations in excess of $1 billion. Securities of these
well-established companies are believed to be generally less
volatile than those of companies with smaller capitalizations
because companies with larger capitalizations tend to have
experienced management; broad, highly diversified product lines;
deep resources; and easy access to credit.
- ------------------------
/1/ A "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Fund.
- ------------------------
BALANCED FUND
This Fund's investment objective is to seek long-term growth
of capital and current income, consistent with reasonable
investment risk. The Fund's assets are allocated among equities,
debt securities and cash. The portfolio manager determines those
allocations using the Adviser's investment strategists' views
regarding economic, market and other factors relative to
investment opportunities.
The equity portion of the Fund's portfolio is invested
primarily in well-established companies having market
capitalizations in excess of $1 billion. Fixed-income senior
securities will make up at least 25% of the Fund's total assets.
Investments in debt securities are limited to those that are
within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized
statistical rating organization or, if unrated, determined by
the Adviser to be of comparable quality.
GROWTH STOCK FUND
This Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by normally investing
at least 65% of its total assets in common stocks and other
equity-type securities (such as preferred stocks, securities
convertible into or exchangeable for common stocks, and warrants
or rights to purchase common stocks) that, in the opinion of the
Adviser, have long-term appreciation possibilities.
SPECIAL FUND
This Fund's investment objective is to invest in securities
selected for possible capital appreciation. Particular emphasis
is placed on securities that are considered to have limited
downside risk relative to their potential for above-average
growth, including securities of undervalued, underfollowed or out-
of-favor companies, and companies that are low-cost producers of
goods or services, financially strong or run by well-respected
managers. The Fund may invest more than 5% of its net assets in
securities of seasoned, established companies that appear to have
appreciation potential, as well as securities of relatively small,
new companies. In addition, it may invest in securities with
limited marketability, new issues of securities, securities of
companies that, in the Adviser's opinion, will benefit from
management change, new technology, new product or service
development or change in demand, and other securities that the
Adviser believes have capital appreciation possibilities; however,
the Fund does not currently intend to invest, nor has it invested
in the past fiscal year, more than 5% of its net assets in any of
these types of securities. Securities of smaller, newer companies
may be subject to greater price volatility than securities of
larger more well-established companies. In addition, many smaller
companies are less well known to the investing public and may not
be as widely followed by the investment community. Although the
Fund will invest primarily in common stocks, it may also invest in
other equity-type securities, including preferred stocks and
securities convertible into equity securities.
SPECIAL VENTURE FUND
The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of common stocks and other
equity-type securities (such as preferred stocks, securities
convertible or exchangeable for common stocks, and warrants or
rights to purchase common stocks) of entrepreneurially managed
companies that the Adviser believes represent special
opportunities. The Fund emphasizes investments in financially
strong small and medium-sized companies based principally on
management appraisal and stock valuation. The Adviser considers
"small" and "medium-sized" companies to be those with market
capitalizations of less than $1 billion and $1 to $3 billion,
respectively.
In both its initial and ongoing appraisals of a company's
management, the Adviser seeks to know both the principal owners
and senior management and to assess their business judgment and
strategies through personal visits. The Adviser favors companies
whose management has an owner/operator, risk-averse orientation
and a demonstrated ability to create wealth for investors.
Attractive company characteristics include unit growth, favorable
cost structures or competitive positions, and financial strength
that enables management to execute business strategies under
difficult conditions. A company is attractively valued when its
stock can be purchased at a meaningful discount to the value of
the underlying business.
CAPITAL OPPORTUNITIES FUND
This Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by investing in
selected companies that, in the opinion of the Adviser, offer
opportunities for capital appreciation.
The Fund pursues its objective by investing in aggressive
growth companies. An aggressive growth company, in general, is
one that appears to have the ability to increase its earnings at
an above-average rate. These may include securities of smaller
emerging companies as well as securities of well-seasoned
companies of any size that offer strong earnings growth potential.
Such companies may benefit from new products or services,
technological developments, or changes in management. Securities
of smaller companies may be subject to greater price volatility
than securities of larger companies. In addition, many smaller
companies are less well known to the investing public and may not
be as widely followed by the investment community. Although it
invests primarily in common stocks, the Fund may invest in all
types of equity securities, including preferred stocks and
securities convertible into common stocks.
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES
In pursuing its investment objective, each Fund may invest in
debt securities of corporate and governmental issuers. The risks
inherent in debt securities depend primarily on the term and
quality of the obligations in a Fund's portfolio as well as on
market conditions. A decline in the prevailing levels of interest
rates generally increases the value of debt securities, while an
increase in rates usually reduces the value of those securities.
Investments in debt securities by Growth & Income Fund,
Balanced Fund, and Growth Stock Fund are limited to those that are
within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized
statistical rating organization or, if unrated, deemed to be of
comparable quality by the Adviser. Special Venture Fund, Capital
Opportunities Fund, and Special Fund may invest up to 35% of their
net assets in debt securities, but do not expect to invest more
than 5% of their net assets in debt securities that are rated
below investment grade.
Securities in the fourth highest grade may possess
speculative characteristics, and changes in economic conditions
are more likely to affect the issuer's capacity to pay interest
and repay principal. If the rating of a security held by a Fund
is lost or reduced below investment grade, the Fund is not
required to dispose of the security, but the Adviser will consider
that fact in determining whether that Fund should continue to hold
the security.
Securities that are rated below investment grade are
considered predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal according to the
terms of the obligation and therefore carry greater investment
risk, including the possibility of issuer default and bankruptcy.
When the Adviser determines that adverse market or economic
conditions exist and considers a temporary defensive position
advisable, the Funds may invest without limitation in high-quality
fixed income securities or hold assets in cash or cash
equivalents.
DERIVATIVES
Consistent with its objective, each Fund may invest in a
broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, floating rate
instruments, and other instruments that securitize assets of
various types ("Derivatives"). In each case, the value of the
instrument or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index, an
interest rate, or a currency.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because it is more
efficient or less costly than direct investment that cannot be
readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and directions
of movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the underlying
asset or benchmark. In addition, correlations in the performance of
an underlying asset to a Derivative may not be well established.
Finally, privately negotiated and over-the-counter Derivatives may not
be as well regulated and may be less marketable than exchange-traded
Derivatives.
No Fund currently intends to invest, nor has any Fund during
its past fiscal year invested, more than 5% of its net assets in
any type of Derivative, except for options, futures contracts, and
futures options. (See Options and Futures in this Statement of
Additional Information.)
Some mortgage-backed debt securities are of the "modified
pass-through type," which means the interest and principal
payments on mortgages in the pool are "passed through" to
investors. During periods of declining interest rates, there is
increased likelihood that mortgages will be prepaid, with a
resulting loss of the full-term benefit of any premium paid by the
Fund on purchase of such securities; in addition, the proceeds of
prepayment would likely be invested at lower interest rates.
Mortgage-backed securities provide either a pro rata interest
in underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") that represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, prepayment risks, and yield
characteristics. Mortgage-backed securities involve the risk of
prepayment on the underlying mortgages at a faster or slower rate
than the established schedule. Prepayments generally increase
with falling interest rates and decrease with rising rates but
they also are influenced by economic, social, and market factors.
If mortgages are pre-paid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of
any premium paid by the Fund on purchase of the CMO, and the
proceeds of prepayment would likely be invested at lower interest
rates.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans that finance payments on the securities
themselves.
Floating rate instruments provide for periodic adjustments in
coupon interest rates that are automatically reset based on
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with an
adjusted duration of 2 would increase by approximately 2%.
CONVERTIBLE SECURITIES
By investing in convertible securities, a Fund obtains the
right to benefit from the capital appreciation potential in the
underlying stock upon exercise of the conversion right, while
earning higher current income than would be available if the stock
were purchased directly. In determining whether to purchase a
convertible, the Adviser will consider substantially the same
criteria that would be considered in purchasing the underlying
stock. While convertible securities purchased by a Fund are
frequently rated investment grade, each Fund may purchase unrated
securities or securities rated below investment grade if the
securities meet the Adviser's other investment criteria.
Convertible securities rated below investment grade (a) tend to be
more sensitive to interest rate and economic changes, (b) may be
obligations of issuers who are less creditworthy than issuers of
higher quality convertible securities, and (c) may be more thinly
traded due to such securities being less well known to investors
than either common stock or conventional debt securities. As a
result, the Adviser's own investment research and analysis tends
to be more important in the purchase of such securities than other
factors.
DEFENSIVE INVESTMENTS
When the Adviser considers a temporary defensive position
advisable, each Fund may invest, without limitation, in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES
Each Fund may invest up to 25% of its total assets in foreign
securities, which may entail a greater degree of risk (including
risks relating to exchange rate fluctuations, tax provisions, or
expropriation of assets) than does investment in securities of
domestic issuers. For this purpose, foreign securities do not
include American Depositary Receipts (ADRs) or securities
guaranteed by a United States person. ADRs are receipts typically
issued by an American bank or trust company evidencing ownership
of the underlying securities. The Funds may invest in sponsored
or unsponsored ADRs. In the case of an unsponsored ADR, a Fund is
likely to bear its proportionate share of the expenses of the
depository and it may have greater difficulty in receiving
shareholder communications than it would have with a sponsored
ADR. No Fund intends to invest, nor during the past fiscal year
has any Fund invested, more than 5% of its net assets in
unsponsored ADRs.
As of September 30, 1995, the Funds' holdings of foreign
companies, as a percentage of net assets, were as follows: Growth
& Income Fund, 4.4% (1.5% in foreign securities and 2.9% in ADRs),
Balanced Fund, 5.2% (1.0% in foreign securities and 4.2% in ADRs),
Growth Stock Fund, 6.3% (1.2% in foreign securities and 5.1% in
ADRs), Special Fund, 7.5% (6.0% in foreign securities and 1.5% in
ADRs); Special Venture Fund, 4.9% (4.9% in foreign securities and
none in ADRs); and Capital Opportunities Fund, 2.5% (none in
foreign securities and 2.5% in ADRs).
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, a Fund's
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar value
of the yen-denominated stock will fall. (See discussion of
transaction hedging and portfolio hedging under Currency Exchange
Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions in which are generally denominated in foreign
currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements.
Although the Funds will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
The Funds' foreign currency exchange transactions are limited
to transaction and portfolio hedging involving either specific
transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward contracts with respect to specific
receivables or payables of a Fund arising in connection with the
purchase and sale of its portfolio securities. Portfolio hedging
is the use of forward contracts with
respect to portfolio security positions denominated or quoted in a
particular foreign currency. Portfolio hedging allows the Fund to
limit or reduce its exposure in a foreign currency by entering
into a forward contract to sell such foreign currency (or another
foreign currency that acts as a proxy for that currency) at a
future date for a price payable in U.S. dollars so that the value
of the foreign-denominated portfolio securities can be
approximately matched by a foreign-denominated liability. A Fund
may not engage in portfolio hedging with respect to the currency
of a particular country to an extent greater than the aggregate
market value (at the time of making such sale) of the securities
held in its portfolio denominated or quoted in that particular
currency, except that a Fund may hedge all or part of its foreign
currency exposure through the use of a basket of currencies or a
proxy currency where such currencies or currency act as an
effective proxy for other currencies. In such a case, a Fund may
enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into
separate forward contracts for each currency held in a Fund. No
Fund may engage in "speculative" currency exchange transactions.
At the maturity of a forward contract to deliver a particular
currency, a Fund may either sell the portfolio security related to
such contract and make delivery of the currency, or it may retain
the security and either acquire the currency on the spot market or
terminate its contractual obligation to deliver the currency by
purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same
amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for a Fund to
purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell on the
spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of
currency a Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If a Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between
a Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward
prices increase, a Fund will suffer a loss to the extent the price
of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. A default on the contract would
deprive the Fund of unrealized profits or force the Fund to cover
its commitments for purchase or sale of currency, if any, at the
current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to a Fund of engaging in currency exchange
transactions varies with such factors as the currency involved,
the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually
conducted on a principal basis, no fees or commissions are
involved.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (5) under Investment Restrictions in
this Statement of Additional Information, each Fund may lend its
portfolio securities to broker-dealers and banks. Any such loan
must be continuously secured by collateral in cash or cash
equivalents maintained on a current basis in an amount at least
equal to the market value of the securities loaned by the Fund.
The Fund would continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities loaned, and
would also receive an additional return that may be in the form of
a fixed fee or a percentage of the collateral. The Fund would
have the right to call the loan and obtain the securities loaned
at any time on notice of not more than five business days. The
Fund would not have the right to vote the securities during the
existence of the loan but would call the loan to permit voting of
the securities if, in the Adviser's judgment, a material event
requiring a shareholder vote would otherwise occur before the loan
was repaid. In the event of bankruptcy or other default of the
borrower, the Fund could experience both delays in liquidating the
loan collateral or recovering the loaned securities and losses,
including (a) possible decline in the value of the collateral or
in the value of the securities loaned during the period while the
Fund seeks to enforce its rights thereto, (b) possible subnormal
levels of income and lack of access to income during this period,
and (c) expenses of enforcing its rights. No Fund loaned
portfolio securities during the fiscal year ended September 30,
1995 nor does it currently intend to loan more than 5% of its net
assets.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS
Each Fund may purchase securities on a when-issued or
delayed-delivery basis. Although the payment and interest terms
of these securities are established at the time a Fund enters into
the commitment, the securities may be delivered and paid for a
month or more after the date of purchase, when their value may
have changed. The Funds make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if the Adviser deems it
advisable for investment reasons. No Fund had during its last
fiscal year, nor does any Fund currently intend to have,
commitments to purchase when-issued securities in excess of 5% of
its net assets.
Each Fund may enter into reverse repurchase agreements with
banks and securities dealers. A reverse repurchase agreement is a
repurchase agreement in which a Fund is the seller of, rather than
the investor in, securities and agrees to repurchase them at an
agreed-upon time and price. Use of a reverse repurchase agreement
may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction
costs. No Fund entered into reverse repurchase agreements during
the fiscal year ended September 30, 1995.
At the time a Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S. Government
securities or other "high-grade" debt obligations) of the Fund
having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the
Fund and held by the custodian throughout the period of the
obligation. The use of these investment strategies, as well as
borrowing under a line of credit as described below, may increase
net asset value fluctuation.
SHORT SALES "AGAINST THE BOX"
Each Fund may sell securities short against the box;
that is, enter into short sales of securities that it
currently owns or has the right to acquire through the
conversion or exchange of other securities that it owns at no
additional cost. A Fund may make short sales of securities
only if at all times when a short position is open the Fund
owns at least an equal amount of such securities or
securities convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities
sold short, at no additional cost.
In a short sale against the box, a Fund does not deliver
from its portfolio the securities sold. Instead, the Fund
borrows the securities sold short from a broker-dealer
through which the short sale is executed, and the broker-
dealer delivers such securities, on behalf of the Fund, to
the purchaser of such securities. The Fund is required to
pay to the broker-dealer the amount of any dividends paid on
shares sold short. Finally, to secure its obligation to
deliver to such broker-dealer the securities sold short, the
Fund must deposit and continuously maintain in a separate
account with the Fund's custodian an equivalent amount of the
securities sold short or securities convertible into or
exchangeable for such securities at no additional cost. A
Fund is said to have a short position in the securities sold
until it delivers to the broker-dealer the securities sold.
A Fund may close out a short position by purchasing on the
open market and delivering to the broker-dealer an equal
amount of the securities sold short, rather than by
delivering portfolio securities.
Short sales may protect a Fund against the risk of losses in
the value of its portfolio securities because any unrealized
losses with respect to such portfolio securities should be wholly
or partially offset by a corresponding gain in the short position.
However, any potential gains in such portfolio securities should
be wholly or partially offset by a corresponding loss in the short
position. The extent to which such gains or losses are offset
will depend upon the amount of securities sold short relative to
the amount the Fund owns, either directly or indirectly, and, in
the case where the Fund owns convertible securities, changes in
the conversion premium.
Short sale transactions involve certain risks. If the price
of the security sold short increases between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund
will incur a loss and if the price declines during this period,
the Fund will realize a short-term capital gain. Any realized
short-term capital gain will be decreased, and any incurred loss
increased, by the amount of transaction costs and any premium,
dividend or interest which the Fund may have to pay in connection
with such short sale. Certain provisions of the Internal Revenue
Code may limit the degree to which a Fund is able to enter into
short sales. There is no limitation on the amount of each Fund's
assets that, in the aggregate, may be deposited as collateral for
the obligation to replace securities borrowed to effect short
sales and allocated to segregated accounts in connection with
short sales. No Fund currently expects that more than 20% of its
total assets would be involved in short sales against the box.
RULE 144A SECURITIES
Each Fund may purchase securities that have been privately
placed but that are eligible for purchase and sale under Rule 144A
under the 1933 Act. That Rule permits certain qualified
institutional buyers, such as the Fund, to trade in privately
placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund's restriction of
investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is
liquid or not is a question of fact. In making this
determination, the Adviser will consider the trading markets for
the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser could consider
the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market,
and (4) nature of the security and of marketplace trades (e.g.,
the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored and if, as a result of
changed conditions, it is determined that a Rule 144A security is
no longer liquid, the Fund's holdings of illiquid securities would
be reviewed to determine what, if any, steps are required to
assure that the Fund does not invest more than 15% of its assets
in illiquid securities. Investing in Rule 144A securities could
have the effect of increasing the amount of a Fund's assets
invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities. No Fund expects to
invest as much as 5% of its total assets in Rule 144A securities
that have not been deemed to be liquid by the Adviser. (See
restriction (n) under Investment Restrictions.)
LINE OF CREDIT
Subject to restriction (6) under Investment Restrictions in
this Statement of Additional Information, each Fund may establish
and maintain a line of credit with a major bank in order to permit
borrowing on a temporary basis to meet share redemption requests
in circumstances in which temporary borrowing may be preferable to
liquidation of portfolio securities.
PORTFOLIO TURNOVER
Although the Funds do not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
that portfolio securities must be held. At times, Special Fund
and Capital Opportunities Fund may invest for short-term capital
appreciation. Portfolio turnover can occur for a number of
reasons such as general conditions in the securities markets, more
favorable investment opportunities in other securities, or other
factors relating to the desirability of holding or changing a
portfolio investment. Because of the Funds' flexibility of
investment and emphasis on growth of capital, they may have
greater portfolio turnover than that of mutual funds that have
primary objectives of income or maintenance of a balanced
investment position. The future turnover rate may vary greatly
from year to year. A high rate of portfolio turnover in a Fund,
if it should occur, would result in increased transaction
expenses, which must be borne by that Fund. High portfolio
turnover may also result in the realization of capital gains or
losses and, to the extent net short-term capital gains are
realized, any distributions resulting from such gains will be
considered ordinary income for federal income tax purposes. (See
Risks and Investment Considerations and Distributions and Income
Taxes in the Prospectus, and Additional Income Tax Considerations
in this Statement of Additional Information.)
OPTIONS ON SECURITIES AND INDEXES
Each Fund may purchase and sell put options and call options
on securities, indexes or foreign currencies in standardized
contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ. Each Fund may
purchase agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium, the
right to buy from (call) or sell to (put) the seller (writer) of
the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the
term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver
the underlying security or foreign currency upon payment of the
exercise price or to pay the exercise price upon delivery of the
underlying security or foreign currency. Upon exercise, the
writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option.
(An index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators.)
A Fund will write call options and put options only if they
are "covered." For example, in the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or,
if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its
custodian) upon conversion or exchange of other securities held in
its portfolio.
If an option written by a Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by a Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when a Fund desires.
A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase
the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of
the option, the volatility of the underlying security or index,
and the time remaining until the expiration date.
A put or call option purchased by a Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid
and asked prices.
Risks Associated with Options on Securities and Indexes.
There are several risks associated with transactions in options.
For example, there are significant differences between the
securities markets, the currency markets, and the options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected events.
There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. If a Fund were
unable to close out an option that it had purchased on a security,
it would have to exercise the option in order to realize any
profit or the option would expire and become worthless. If a Fund
were unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying
security until the option expired. As the writer of a covered
call option on a security, a Fund foregoes, during the option's
life, the opportunity to profit from increases in the market value
of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased or written
by a Fund, the Fund would not be able to close out the option. If
restrictions on exercise were imposed, the Fund might be unable to
exercise an option it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Fund may use interest rate futures contracts, index
futures contracts, and foreign currency futures contracts. An
interest rate, index or foreign currency futures contract provides
for the future sale by one party and purchase by another party of
a specified quantity of a financial instrument or the cash value
of an index /2/ at a specified price and time. A public market
exists in futures contracts covering a number of indexes
(including, but not limited to: the Standard & Poor's 500 Index,
the Value Line Composite Index, and the New York Stock Exchange
Composite Index) as well as financial instruments (including, but
not limited to: U.S. Treasury bonds, U.S. Treasury notes,
Eurodollar certificates of deposit, and foreign currencies).
Other index and financial instrument futures contracts are
available and it is expected that additional futures contracts
will be developed and traded.
- ---------------------
/2/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made.
- ---------------------
The Funds may purchase and write call and put futures
options. Futures options possess many of the same characteristics
as options on securities, indexes and foreign currencies
(discussed above). A futures option gives the holder the right,
in return for the premium paid, to assume a long position (call)
or short position (put) in a futures contract at a specified
exercise price at any time during the period of the option. Upon
exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true. A
Fund might, for example, use futures contracts to hedge against or
gain exposure to fluctuations in the general level of stock
prices, anticipated changes in interest rates or currency
fluctuations that might adversely affect either the value of the
Fund's securities or the price of the securities that the Fund
intends to purchase. Although other techniques could be used to
reduce or increase that Fund's exposure to stock price, interest
rate and currency fluctuations, the Fund may be able to achieve its
exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
Each Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
The success of any futures transaction depends on the Adviser
correctly predicting changes in the level and direction of stock
prices, interest rates, currency exchange rates and other factors.
Should those predictions be incorrect, a Fund's return might have
been better had the transaction not been attempted; however, in
the absence of the ability to use futures contracts, the Adviser
might have taken portfolio actions in anticipation of the same
market movements with similar investment results but, presumably,
at greater transaction costs.
When a purchase or sale of a futures contract is made by a
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is
set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit on the
futures contract, which is returned to the Fund upon termination
of the contract, assuming all contractual obligations have been
satisfied. A Fund expects to earn interest income on its initial
margin deposits. A futures contract held by a Fund is valued
daily at the official settlement price of the exchange on which it
is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking-to-market."
Variation margin paid or received by a Fund does not represent a
borrowing or loan by the Fund but is instead settlement between
the Fund and the broker of the amount one would owe the other if
the futures contract had expired at the close of the previous day.
In computing daily net asset value, each Fund will mark-to-market
its open futures positions.
Each Fund is also required to deposit and maintain margin
with respect to put and call options on futures contracts written
by it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price is
less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund
realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, the Fund engaging in the
transaction realizes a capital gain, or if it is less, the Fund
realizes a capital loss. The transaction costs must also be
included in these calculations.
RISKS ASSOCIATED WITH FUTURES
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. In trying to increase or reduce market
exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and in
the portfolio exposure sought. In addition, there are significant
differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a
given transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures
options and the related securities, including technical influences
in futures and futures options trading and differences between the
securities market and the securities underlying the standard
contracts available for trading. For example, in the case of
index futures contracts, the composition of the index, including
the issuers and the weighting of each issue, may differ from the
composition of the Fund's portfolio, and, in the case of interest
rate futures contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract may
differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected stock price or interest
rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock
index futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures or futures option
position. The Fund would be exposed to possible loss on the
position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active
secondary market will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
each Fund may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with the
Fund's investment objective.
A Fund will not enter into a futures contract or purchase an
option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by that Fund plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," /3/ would exceed 5%
of the Fund's total assets.
- -------------------
/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- -------------------
When purchasing a futures contract or writing a put option on
a futures contract, a Fund must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contract. When
writing a call option on a futures contract, the Fund similarly
will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is
in-the-money until the option expires or is closed out by the
Fund.
A Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Fund has written
call options on specific securities in its portfolio, the value of
those securities will be deducted from the current market value of
the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," each Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of a Fund, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into [in
the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section 190.01(x)
of the Commission Regulations) may be excluded in computing such
5%].
As long as a Fund continues to sell its shares in certain
states, the Fund's options and futures transactions will also be
subject to certain non-fundamental investment restrictions set
forth under Investment Restrictions in this Statement of
Additional Information.
TAXATION OF OPTIONS AND FUTURES
If a Fund exercises a call or put option that it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by a Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by a Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by a Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Fund was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If a Fund writes an equity call option /4/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities covering
the option, may be subject to deferral until the securities
covering the option have been sold.
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/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500
index).
- -----------------
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a Fund
delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund generally is required
to recognize as income for each taxable year its net unrealized
gains and losses as of the end of the year on futures, futures
options and non-equity options positions ("year-end mark-to-
market"). Generally, any gain or loss recognized with respect to
such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term
and 40% short-term, without regard to the holding
periods of the contracts. However, in the case of positions
classified as part of a "mixed straddle," the recognition of
losses on certain positions (including options, futures and
futures options positions, the related securities and certain
successor positions thereto) may be deferred to a later taxable
year. Sale of futures contracts or writing of call options (or
futures call options) or buying put options (or futures put
options) that are intended to hedge against a change in the value
of securities held by a Fund: (1) will affect the holding period
of the hedged securities; and (2) may cause unrealized gain or
loss on such securities to be recognized upon entry into the
hedge.
If a Fund were to enter into a short index future, short
index futures option or short index option position and the Fund's
portfolio were deemed to "mimic" the performance of the index
underlying such contract, the option or futures contract position
and the Fund's stock positions would be deemed to be positions in
a mixed straddle, subject to the above-mentioned loss deferral
rules.
In order for a Fund to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of
its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities held
for less than three months must be limited to less than 30% of the
Fund's annual gross income. Any net gain realized from futures
(or futures options) contracts will be considered gain from the
sale of securities and therefore be qualifying income for purposes
of the 90% requirement. In order to avoid realizing excessive
gains on securities held less than three months, the Fund may be
required to defer the closing out of certain positions beyond the
time when it would otherwise be advantageous to do so.
Each Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options and
futures transactions. Such distributions are combined with
distributions of capital gains realized on the Fund's other
investments, and shareholders are advised of the nature of the
payments.
INVESTMENT RESTRICTIONS
Each Fund operates under the following investment
restrictions. A Fund may not:
(1) with respect to 75% of its total assets, invest more than
5% of its total assets, taken at market value at the time of a
particular purchase, in the securities of a single issuer, except
for securities issued or guaranteed by the Government of the U.S.
or any of its agencies or instrumentalities or repurchase
agreements for such securities, and except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(2) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer,
except that all or substantially all of the assets of the Fund may
be invested in another registered investment company having the
same investment objective and substantially similar investment
policies as the Fund;
(3) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities Act of
1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale, except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, or commodity contracts, except
that it may enter into (a) futures and options on futures and (b)
forward contracts;
(5) make loans, although the Fund may (a) lend portfolio
securities and participate in an interfund lending program with
other Stein Roe Funds provided that no such loan may be made if,
as a result, the aggregate of such loans would exceed 33 1/3% of
the value of the Fund's total assets (taken at market value at the
time of such loans); (b) purchase money market instruments and
enter into repurchase agreements; and (c) acquire publicly-
distributed or privately-placed debt securities;
(6) borrow except that the Fund may (a) borrow for non-
leveraging, temporary or emergency purposes, (b) engage in reverse
repurchase agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of the Fund's total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law, and (c) enter into futures and options
transactions; the Fund may borrow from banks, other Stein Roe
Funds, and other persons to the extent permitted by applicable
law;
(7) invest in a security if more than 25% of its total assets
(taken at market value at the time of a particular purchase) would
be invested in the securities of issuers in any particular
industry, except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund; or
(8) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
The above restrictions (other than bracketed portions thereof
and, in the case of Special Fund, other than 1 and 2) are
fundamental policies and may not be changed without the approval
of a "majority of the outstanding voting securities" as defined
above. Each Fund and, in the case of Special Fund, together with
restrictions 1 and 2 above, is also subject to the following non-fundamental
restrictions and policies, which may be changed by
the Board of Trustees. None of the following restrictions shall
prevent a Fund from investing all or substantially all of its
assets in another investment company having the same investment
objective and substantially the same investment policies as the
Fund. A Fund may not:
(a) invest in any of the following: (i) interests in oil,
gas, or other mineral leases or exploration or development
programs (except readily marketable securities, including but not
limited to master limited partnership interests, that may
represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls, straddles,
spreads, or any combination thereof (except that the Fund may
enter into transactions in options, futures, and options on
futures); (iii) shares of other open-end investment companies,
except in connection with a merger, consolidation, acquisition, or
reorganization; and (iv) limited partnerships in real estate
unless they are readily marketable;
(b) invest in companies for the purpose of exercising control
or management;
(c) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of the Fund's total assets (valued at time of
purchase) in the case of any one other investment company and 10%
of such assets (valued at time of purchase) in the case of all
other investment companies in the aggregate; any such purchases
are to be made in the open market where no profit to a sponsor or
dealer results from the purchase, other than the customary
broker's commission, except for securities acquired as part of a
merger, consolidation or acquisition of assets;
(d) purchase or hold securities of an issuer if 5% of the
securities of such issuer are owned by those officers, trustees,
or directors of the Trust or of its investment adviser, who each
own beneficially more than 1/2 of 1% of the securities of that
issuer;
(e) mortgage, pledge, or hypothecate its assets, except as
may be necessary in connection with permitted borrowings or in
connection with options, futures, and options on futures;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American Stock
Exchange;
(g) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;
(h) invest more than 25% of its total assets (valued at time
of purchase) in securities of foreign issuers (other than
securities represented by American Depositary Receipts (ADRs) or
securities guaranteed by a U.S. person);
(i) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered
through the facilities of a recognized securities association
or listed on a recognized exchange or similar entity;
(j) purchase a put or call option if the aggregate premiums
paid for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
(k) purchase securities on margin (except for use of short-
term credits as are necessary for the clearance of transactions),
or sell securities short unless (i) the Fund owns or has the right
to obtain securities equivalent in kind and amount to those sold
short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which the Fund expects to
receive in a recapitalization, reorganization, or other exchange
for securities the Fund contemporaneously owns or has the right to
obtain and provided that transactions in options, futures, and
options on futures are not treated as short sales;
(l) invest more than 5% of its total assets (taken at market
value at the time of a particular investment) in securities of
issuers (other than issuers of federal agency obligations or
securities issued or guaranteed by any foreign country or asset-
backed securities) that, together with any predecessors or
unconditional guarantors, have been in continuous operation for
less than three years ("unseasoned issuers");
(m) invest more than 5% of its total assets (taken at market
value at the time of a particular investment) in restricted
securities, other than securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933;
(n) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in restricted
securities and securities of unseasoned issuers; or
(o) invest more than 15% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities, including repurchase agreements maturing in more than
seven days.
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. It has worked
to build wealth for generations by being guided by three primary
objectives which it believes are the foundation of a successful
investment program. These objectives are preservation of capital,
limited volatility through managed risk, and consistent above-
average returns. Because every investor's needs are different,
Stein Roe mutual funds are designed to accommodate different
investment objectives, risk tolerance levels, and time horizons.
In selecting a mutual fund, investors should ask the following
questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize your
investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks which
will vary depending on investment objective and security type.
However, mutual funds seek to reduce risk through professional
investment management and portfolio diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no guarantee
that they will be able to maintain a stable net asset value of
$1.00 per share, money market funds emphasize safety of principal
and liquidity, but tend to offer lower income potential than bond
funds. Bond funds tend to offer higher income potential than
money market funds but tend to have greater risk of principal and
yield volatility.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information is
incorporated herein by reference. The Prospectus discloses that
you may purchase (or redeem) shares through investment dealers,
banks, or other institutions. It is the responsibility of any
such institution to establish procedures insuring the prompt
transmission to the Trust of any such purchase order. The state
of Texas has asked that the Trust disclose in its Statement of
Additional Information, as a reminder to any such bank or
institution, that it must be registered as a securities dealer in
Texas.
Each Fund's net asset value is determined on days on which
the New York Stock Exchange (the "NYSE") is open for trading. The
NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the judgment
of the Board of Trustees, net asset value of a Fund should be
determined on any such day, in which case the determination will
be made at 3:00 p.m., Chicago time.
The Trust intends to pay all redemptions in cash and is
obligated to redeem shares solely in cash up to the lesser of
$250,000 or one percent of the net assets of the Trust during any
90-day period for any one shareholder. However, redemptions in
excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made
in kind, the redeeming shareholders might incur transaction
costs in selling the securities received in the redemptions.
Due to the relatively high cost of maintaining smaller
accounts, the Trust reserves the right to redeem shares in any
account for their then-current value (which will be promptly paid
to the investor) if at any time the shares in the account do not
have a value of at least $1,000. An investor will be notified
that the value of his account is less than that minimum and
allowed at least 30 days to bring the value of the account up to
at least $1,000 before the redemption is processed. The Agreement
and Declaration of Trust also authorizes the Trust to redeem
shares under certain other circumstances as may be specified by
the Board of Trustees.
The Trust reserves the right to suspend or postpone
redemptions of shares of any Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the Securities
and Exchange Commission, or the NYSE is closed for other than
customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c)
an emergency, as determined by the Securities and Exchange
Commission, exists, making disposal of portfolio securities or
valuation of net assets of such Fund not reasonably practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held
Name Age with the Trust Principal occupation(s) during past five years
- -------------------- -- ------------------------ -----------------------------------------------
<S> <C> <C> <C>
Gary A. Anetsberger 40 Senior Vice-President Controller of the Mutual Funds division of Stein Roe &
Farnham Incorporated (the "Adviser"); senior vice
president of the Adviser since April, 1996; vice
president of the Adviser, January, 1991 to April, 1996
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of the Adviser
(1) (2) and director of the Adviser since June, 1992; senior
vice president and director of marketing of Citibank
Illinois prior thereto
Jilaine Hummel Bauer 40 Executive Vice-President; General counsel and secretary of the Adviser since
Secretary November, 1995; senior vice president of the Adviser
since April, 1992; vice president of the Adviser prior
thereto
Bruno Bertocci 41 Vice-President Vice president of Colonial Management Associates, Inc.
since January, 1996; senior vice president of the
Adviser since May, 1995; global equity portfolio
manager with Rockefeller & Co. prior thereto
Kenneth L. Block (3) 76 Trustee Chairman emeritus of A. T. Kearney, Inc. (international
management consultants)
William W. Boyd (3) 69 Trustee Chairman and director of Sterling Plumbing Group, Inc.
(manufacturer of plumbing products) since 1992;
chairman, president, and chief executive officer of
Sterling Plumbing Group, Inc. prior thereto
David P. Brady 32 Vice-President Vice president of the Adviser since November, 1995;
portfolio manager for the Adviser since 1993; equity
investment analyst, State Farm Mutual Automobile
Insurance Company prior thereto
Thomas W. Butch 39 Vice-President Senior vice president of the Adviser since September,
1994; first vice president, corporate communications,
of Mellon Bank Corporation prior thereto
N. Bruce Callow 50 Executive Vice-President President of the Investment Counsel division of the
Adviser since June, 1994; senior vice president of
trust and financial services for The Northern Trust
prior thereto
Daniel K. Cantor 36 Vice-President Senior vice president of the Adviser
Lindsay Cook (1) 44 Trustee Senior vice president of Liberty Financial Companies,
Inc. (the indirect parent of the Adviser)
E. Bruce Dunn 62 Vice-President Senior vice president of the Adviser
Erik P. Gustafson 32 Vice-President Senior portfolio manager of the Adviser; senior vice
president of the Adviser since April, 1996; vice
president of the Adviser from May, 1994 to April, 1996;
associate of the Adviser from April, 1992 to May, 1994;
associate attorney with Fowler White Burnett Hurley
Banick & Strickroot prior thereto
David P. Harris 32 Vice-President Vice president of Colonial Management Associates, Inc.
since January, 1996; vice president of the Adviser
since May, 1995; global equity portfolio manager with
Rockefeller & Co. prior thereto
Douglas A. Hacker 40 Trustee Senior vice president and chief financial officer,
United Airlines, since July, 1994; senior vice
president--Finance, United Airlines, February, 1993 to
July, 1994; vice president--corporate & fleet planning,
American Airlines, 1991 to February, 1993
Philip D. Hausken 38 Vice-President Vice president of the Adviser since November, 1995;
corporate counsel for the Adviser since July, 1994;
assistant regional director, midwest regional office of
the Securities and Exchange Commission prior thereto
Harvey B. Hirschhorn 46 Vice-President Executive vice president, chief economist, and
investment strategist of the Adviser; director of
research of the Adviser, 1991 to 1995
Stephen P. Lautz 39 Vice-President Vice president of the Adviser since May, 1994;
associate of the Adviser prior thereto
Eric S. Maddix 32 Vice-President Vice president of the Adviser since November, 1995;
portfolio manager or research assistant for the Adviser
since 1987
Lynn C. Maddox 55 Vice-President Senior vice president of the Adviser
Anne E. Marcel 38 Vice-President Vice president of the Adviser since April, 1996;
manager, Mutual Fund Sales & Services of the Adviser
since October, 1994; supervisor of the Counselor
Department of the Adviser from October, 1992 to
October, 1994; vice president of Selected Financial
Services from May, 1990 to March, 1992
Francis W. Morley(3) 76 Trustee Chairman of Employer Plan Administrators and
Consultants Co. (designer, administrator, and
communicator of employee benefit plans)
Charles R. Nelson(3) 53 Trustee Van Voorhis Professor of Political Economy, University
of Washington
Nicolette D. Parrish 46 Vice-President; Senior compliance administrator and assistant secretary
Assistant Secretary of the Adviser since November, 1995; senior legal
assistant for the Adviser prior thereto
Richard B. Peterson 55 Vice-President Senior vice president of the Adviser since June, 1991;
officer of State Farm Investment Management Corporation
prior thereto
Sharon R. Robertson 34 Controller Accounting manager for the Adviser's Mutual Funds
division
Janet B. Rysz 40 Assistant Secretary Senior compliance administrator and assistant secretary
of the Adviser
Gloria J. Santella 38 Vice-President Senior vice president of the Adviser since November,
1995; vice president of the Adviser from January, 1992
to November, 1995; associate of the Adviser prior
thereto
Thomas P. Sorbo 35 Vice-President Senior vice president of the Adviser since January,
1994; vice president of the Adviser from September,
1992 to December, 1993; associate of Travelers
Insurance Company prior thereto
Thomas C. Theobald 58 Trustee Managing partner, William Blair Capital Partners
(private equity fund) since 1994; chief executive
officer and chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
Gordon R. Worley 76 Trustee Private investor
(2) (3)
Hans P. Ziegler 55 Executive Vice-President Chief executive officer of the Adviser since May, 1994;
president of the Investment Counsel division of the
Adviser from July, 1993 to June, 1994; president and
chief executive officer, Pitcairn Financial Management
Group prior thereto
Margaret O. Zwick 29 Treasurer Compliance manager for the Adviser's Mutual Funds
division since August 1995; compliance accountant,
January 1995 to July 1995; section manager, January
1994 to January 1995; supervisor, February 1990 to
December 1993
_________________________
(1) Trustee who is an "interested person" of the Trust and of the
Adviser, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope
and results of the audit.
</TABLE>
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by the
Adviser. Ms. Bauer and Mr. Cook are vice presidents of the Fund's
distributor, Liberty Securities Corporation. The address of Mr.
Block is 11 Woodley Road, Winnetka, Illinois 60093; that of Mr.
Boyd is 2900 Golf Road, Rolling Meadows, Illinois 60008; that of
Mr. Cook is 600 Atlantic Avenue, Boston, Massachusetts 02210;
that of Mr. Hacker is P.O. Box 66100, Chicago, IL 60666; that of
Mr. Morley is 20 North Wacker Drive, Suite 2275, Chicago, Illinois
60606; that of Mr. Nelson is Department of Economics, University
of Washington, Seattle, Washington 98195; that of Mr. Theobald is
Suite 3300, 222 West Adams Street, Chicago, IL 60606; that of Mr.
Worley is 1407 Clinton Place, River Forest, Illinois 60305; that
of Messrs. Bertocci, Cantor, and Harris is 1330 Avenue of the
Americas, New York, New York 10019; and that of the other officers
is One South Wacker Drive, Chicago, Illinois 60606.
Officers and trustees affiliated with the Adviser serve
without any compensation from the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or the Adviser are paid an annual retainer
of $8,000 (divided equally among the Funds of the Trust) plus an
attendance fee from each Fund for each meeting of the Board or
committee thereof attended at which business for that Fund is
conducted. The attendance fees (other than for a Nominating
Committee meeting) are based on each Fund's net assets as of the
preceding December 31. For a Fund with net assets of less than
$251 million, the fee is $200 per meeting; with $251 million to
$500 million, $350; with $501 million to $750 million, $500; with
$750 million to $1 billion, $650; and with over $1 billion in net
assets, $800. Each non-interested trustee also receives an
aggregate of $500 for attending each meeting of the Nominating
Committee. The Trust has no retirement or pension plans. The
following table sets forth compensation paid by the Trust during
the fiscal year ended September 30, 1995 to each of the trustees:
Aggregate Total Compensation Paid
Compensation to Trustees from the Trust
Name of from the and the Stein Roe Fund
Trustee* Trust Complex**
------------ ------------ ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Alfred F. Kugel -0- -0-
Kenneth L. Block $26,800 $66,400
William W. Boyd 22,050 58,650
Francis W. Morley 26,200 66,000
Charles R. Nelson 28,550 68,350
Gordon R. Worley 26,200 66,000
____________
* Messrs. Armour, Boyd, and Cook were elected trustees of the
Trust on January 17, 1995. Mr. Kugel was an affiliated
trustee through January 17, 1995. Messrs. Hacker and Theobald
were elected trustees on June 18, 1996.
** During this period, the Stein Roe Fund Complex consisted of
the six series of Stein Roe Income Trust, four series of Stein
Roe Municipal Trust, eight series of Stein Roe Investment
Trust, and one series of SR&F Base Trust.
FINANCIAL STATEMENTS
Please refer to the Funds' 9/30/95 Financial Statements
(balance sheets and schedules of investments as of 9/30/95 and the
statements of operations, changes in net assets, and notes
thereto) and the report of independent auditors contained in the
9/30/95 Annual Report of the Funds and to the Funds' 3/31/96
Financial Statements (unaudited balance sheets and schedules of
investments as of 3/31/96 and the statements of operations,
changes in net assets, and notes thereto) contained in the 3/31/96
Semiannual Report of the Funds. The Financial Statements and the
report of independent auditors (but no other material from the
Annual Report or the Semiannual Report) are incorporated herein by
reference. The Annual Report and the Semiannual Report may be
obtained at no charge by telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of October 31, 1995, the only persons known by the Trust
to own of record or "beneficially" 5% or more of the outstanding
shares of a Fund within the definition of that term as contained
in Rule 13d-3 under the Securities Exchange Act of 1934 were as
follows:
APPROXIMATE
PERCENTAGE OF
OUTSTANDING
NAME AND ADDRESS FUND SHARES HELD
- ----------------- ------------- ------------
First Bank National Growth & Income Fund 17.0%
Association* Balanced Fund 20.1
410 N. Michigan Avenue Growth Stock Fund 18.2
Chicago, IL 60611 Special Fund 17.3
Capital Opportunities Fund 18.9
Charles Schwab & Co., Inc.* Growth & Income Fund 19.7
Attn: Mutual Fund Dept. Total Return Fund 11.6
101 Montgomery Street Special Fund 17.7
San Francisco, CA 94104 Capital Opportunities Fund 18.3
___________________
*Shares held of record, but not beneficially.
The following table shows shares of the Funds held by the
categories of persons indicated, and in each case the approximate
percentage of outstanding shares represented:
CLIENTS OF THE
ADVISER IN THEIR TRUSTEES AND
CLIENT ACCOUNTS OFFICERS
AS OF 10/31/95 AS OF 10/31/95
--------------- ----------------
SHARES SHARES
HELD PERCENT HELD PERCENT
------ ------- ------- --------
Growth & Income Fund 1,630,338 19.5% 30,603 **
Balanced Fund 607,786 7.5 13,657 **
Growth Stock Fund 1,057,067 7.7 50,587 **
Special Fund 5,774,609 12.4 169,317 **
Special Venture Fund 3,617,364 73.6 38,143 **
Capital Opportunities
Fund 1,312,559 11.6 97,609 **
______________
*The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by the Adviser under Rule 13d-3. However, the
Adviser disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated, investment adviser to the
Funds, is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Funds' transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which is a majority owned subsidiary of Liberty
Mutual Equity Corporation, which is a wholly owned subsidiary of
Liberty Mutual Insurance Company. Liberty Mutual Insurance
Company is a mutual insurance company, principally in the
property/casualty insurance field, organized under the laws of
Massachusetts in 1912.
The directors of the Adviser are Kenneth R. Leibler, C. Allen
Merritt, Jr., Timothy K. Armour, N. Bruce Callow, and Hans P.
Ziegler. Mr. Leibler is President and Chief Executive Officer of
Liberty Financial; Mr. Merritt is Senior Vice President and
Treasurer of Liberty Financial; Mr. Armour is President of the
Adviser's Mutual Funds division; Mr. Callow is President of the
Adviser's Investment Counsel division; and Mr. Ziegler is Chief
Executive Officer of the Adviser. The business address of Messrs.
Leibler and Merritt is Federal Reserve Plaza, Boston,
Massachusetts 02210; and that of Messrs. Armour, Callow, and
Ziegler is One South Wacker Drive, Chicago, Illinois 60606.
The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension and
profit sharing plans, charitable organizations, and other
institutional investors. As of September 30, 1995, the Adviser
managed over $22.9 billion in assets: over $5.5 billion in
equities and over $17.4 billion in fixed income securities
(including $2.3 billion in municipal securities). The $22.9
billion in managed assets included over $5.7 billion held by open-
end mutual funds managed by the Adviser (approximately 21% of the
mutual fund assets were held by clients of the Adviser). These
mutual funds were owned by over 148,000 shareholders. The $5.7
billion in mutual fund assets included over $570 million in over
33,000 IRA accounts. In managing those assets, the Adviser
utilizes a proprietary computer-based information system that
maintains and regularly updates information for approximately
6,500 companies. The Adviser also monitors over 1,400 issues via
a proprietary credit analysis system. At September 30, 1995,
the Adviser employed 17 research analysts and 36 account managers.
The average investment-related experience of these individuals
was 20 years.
Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] are professional investment advisory
services offered to Fund shareholders. Each is designed to help
shareholders construct Fund investment portfolios to suit their
individual needs. Based on information shareholders provide about
their financial circumstances, goals, and objectives in response
to a questionnaire, the Adviser's investment professionals create
customized portfolio recommendations for investments in the Funds
and other mutual funds managed by the Adviser. Shareholders
participating in Stein Roe Counselor [SERVICE MARK] are free to
self direct their investments while considering the Adviser's
recommendations; shareholders participating in Stein Roe Counselor
Preferred [SERVICE MARK] enjoy the added benefit of having the
Adviser implement portfolio recommendations automatically for a
fee of 1% or less, depending on the size of their portfolios. In
addition to reviewing shareholders' circumstances, goals, and
objectives periodically and updating portfolio recommendations to
reflect any changes, the shareholders who participate in these
programs are assigned a dedicated Counselor [SERVICE MARK]
representative. Other distinctive services include specially
designed account statements with portfolio performance and
transaction data, newsletters, and regular investment, economic,
and market updates. A $50,000 minimum investment is required to
participate in either program.
Please refer to the description of the Adviser, each Fund's
management agreement and administrative agreement, fees, expense
limitations, and transfer agency services under Fee Table and
Management of the Funds in the Prospectus, which is incorporated
herein by reference. The advisory agreement relating to Special
Venture Fund was replaced with a management agreement and an
administrative agreement on July 1, 1996; the advisory agreements
of the other Funds were replaced on September 1, 1995. The table
below shows gross fees paid by the Funds for the three most recent
fiscal years and any expense reimbursements to them by the
Adviser:
YEAR YEAR YEAR
TYPE OF ENDED ENDED ENDED
FUND PAYMENT 9/30/95 9/30/94 9/30/93
- ------------------- ------------- --------- ---------- ----------
Growth & Income Fund Advisory fee $ 680,210 $ 688,242 $ 498,157
Administrative
and management
fee 84,030 N/A N/A
Balanced Fund Advisory fee 1,131,735 1,262,296 1,097,007
Administrative
and management
fee 131,565 N/A N/A
Growth Stock Fund Advisory fee 2,177,363 2,544,530 2,850,075
Administrative
and management
fee 219,495 N/A N/A
Special Fund Advisory fee 8,268,281 8,804,952 6,238,784
Administrative
and management
fee 841,041 N/A N/A
Special Venture Fund Advisory fee 295,409 N/A N/A
Reimbursement 127,482 N/A N/A
Capital Opportuni- Advisory fee 1,303,175 1,240,569 949,563
ties Fund Administrative
and management
fee 175,449 N/A N/A
The Adviser provides office space and executive and other
personnel to the Funds, and bears any sales or promotional
expenses. Each Fund pays all expenses other than those paid by
the Adviser, including but not limited to printing and postage
charges and securities registration and custodian fees and
expenses incidental to its organization.
Each Fund's administrative agreement provides that the
Adviser shall reimburse the Fund to the extent that total annual
expenses of the Fund (including fees paid to the Adviser, but
excluding taxes, interest, commissions and other normal charges
incident to the purchase and sale of portfolio securities, and
expenses of litigation to the extent permitted under applicable
state law) exceed the applicable limits prescribed by any state in
which shares of the Fund are being offered for sale to the public;
provided, however, the Adviser is not required to reimburse a Fund
an amount in excess of fees paid by the Fund under that agreement
for such year. The Trust believes that currently the most
restrictive state limit on mutual fund expenses is that of
California, which limit currently is 2 1/2% of the first $30
million of average net assets, 2% of the next $70 million, and 1
1/2% thereafter. In addition, in the interest of further limiting
expenses of a Fund, the Adviser may voluntarily waive its
management fee and/or absorb certain expenses for a Fund, as
described under Fee Table in the Prospectus. Any such
reimbursement will enhance the yield of such Fund.
Each Fund's management agreement provides that neither the
Adviser, nor any of its directors, officers, stockholders (or
partners of stockholders), agents, or employees shall have any
liability to the Trust or any shareholder of the Trust for any
error of judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by
the Adviser of its duties under the agreement, except for
liability resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under the
agreement.
Any expenses that are attributable solely to the
organization, operation, or business of a Fund shall be paid
solely out of that Fund's assets. Any expenses incurred by the
Trust that are not solely attributable to a particular Fund are
apportioned in such manner as the Adviser determines is fair and
appropriate, unless otherwise specified by the Board of Trustees.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Trust, the Adviser
receives a fee for performing certain bookkeeping and accounting
services for each Fund. For these services, the Adviser receives
an annual fee of $25,000 per Fund plus .0025 of 1% of average net
assets over $50 million. During the fiscal year ended September
30, 1995, the Adviser received aggregate fees of $192,479 from the
Trust for services performed under this Agreement.
DISTRIBUTOR
Shares of each Fund are distributed by Liberty Securities
Corporation ("LSC") under a Distribution Agreement as described
under Management of the Funds in the Prospectus, which is
incorporated herein by reference. The Distribution Agreement
continues in effect from year to year, provided such continuance
is approved annually (i) by a majority of the trustees or by a
majority of the outstanding voting securities of the Trust, and
(ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The Trust has
agreed to pay all expenses in connection with registration of its
shares with the Securities and Exchange Commission and auditing
and filing fees in connection with registration of its shares
under the various state blue sky laws and assumes the cost of
preparation of prospectuses and other expenses.
As agent, LSC offers shares of each Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. In addition, no sales commission or "12b-1" payment is
paid by any Fund. LSC offers the Funds' shares only on a best-
efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management of the Funds in the Prospectus. For
performing these services, SSI receives from each Fund a fee based
on an annual rate of .22 of 1% of the Fund's average net assets.
Prior to May 1, 1995, SSI received the following payments from
each Fund: (1) a fee of $4.00 for each new account opened; (2)
monthly payments of $1.063 per open shareholder account; (3)
payments of $0.367 per closed shareholder account for each month
through June of the calendar year following the year in which the
account is closed; (4) $0.3025 per shareholder account for each
dividend paid; and (5) $1.415 for each shareholder-initiated
transaction. The Trust believes the charges by SSI to the Funds
are comparable to those of other companies performing similar
services. (See Investment Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Trust. It is responsible for holding all securities and cash
of the Funds, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Funds, and performing other administrative duties,
all as directed by authorized persons. The custodian does not
exercise any supervisory function in such matters as purchase and
sale of portfolio securities, payment of dividends, or payment of
expenses of the Funds.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
The Board of Trustees reviews, at least annually, whether it
is in the best interest of each Fund and its shareholders to
maintain Fund assets in each of the countries in which the Fund
invests with particular foreign sub-custodians in such countries,
pursuant to contracts between such respective foreign sub-
custodians and the Bank. The review includes an assessment of the
risks of holding Fund assets in any such country (including risks
of expropriation or imposition of exchange controls), the
operational capability and reliability of each such foreign sub-
custodian, and the impact of local laws on each such custody
arrangement. The Board of Trustees is aided in its review by the
Bank, which has assembled the network of foreign sub-custodians
utilized by the Funds, as well as by the Adviser and counsel.
However, with respect to foreign sub-custodians, there can be no
assurance that a Fund, and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians, or
application of foreign law to a Fund's foreign sub-custodial
arrangements. Accordingly, an investor should recognize that the
non-investment risks involved in holding assets abroad are greater
than those associated with investing in the United States.
The Funds may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur
Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603. The
accountants audit and report on the Funds' annual financial
statements, review certain regulatory reports and the Funds'
federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to do
so by the Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
each Fund's portfolio securities and options and futures
contracts. The Adviser's overriding objective in effecting
portfolio transactions is to seek to obtain the best combination
of price and execution. The best net price, giving effect to
brokerage commissions, if any, and other transaction costs,
normally is an important factor in this decision, but a number of
other judgmental factors may also enter into the decision. These
include: the Adviser's knowledge of negotiated commission rates
currently available and other current transaction costs;
the nature of the security being traded; the size of the
transaction; the desired timing of the trade; the activity
existing and expected in the market for the
particular security; confidentiality; the execution, clearance and
settlement capabilities of the broker or dealer selected and
others which are considered; the Adviser's knowledge of the
financial stability of the broker or dealer selected and such
other brokers or dealers; and the Adviser's knowledge of actual or
apparent operational problems of any broker or dealer.
Recognizing the value of these factors, a Fund may pay a brokerage
commission in excess of that which another broker or dealer may
have charged for effecting the same transaction. Evaluations of
the reasonableness of brokerage commissions, based on the
foregoing factors, are made on an ongoing basis by the Adviser's
staff while effecting portfolio transactions. The general level
of brokerage commissions paid is reviewed by the Adviser, and
reports are made annually to the Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to be
capable of providing the best combination of price and execution
with respect to a particular portfolio transaction for a Fund, the
Adviser often selects a broker or dealer that has furnished it
with research products or services such as research reports,
subscriptions to financial publications and research compilations,
compilations of securities prices, earnings, dividends, and
similar data, and computer data bases, quotation equipment and
services, research-oriented computer software and services, and
services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding
with any of the brokers or dealers; however, the Adviser uses an
internal allocation procedure to identify those brokers or dealers
who provide it with research products or services and the amount
of research products or services they provide, and endeavors to
direct sufficient commissions generated by its clients' accounts
in the aggregate, including the Funds, to such brokers or dealers
to ensure the continued receipt of research products or services
the Adviser feels are useful. In certain instances, the Adviser
receives from brokers and dealers products or services that are
used both as investment research and for administrative,
marketing, or other non-research purposes. In such instances, the
Adviser makes a good faith effort to determine the relative
proportions of such products or services which may be considered
as investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by the
Adviser (without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions by clients
(including the Funds), while the portions of the costs
attributable to non-research usage of such products or services is
paid by the Adviser in cash. No person acting on behalf of a Fund
is authorized, in recognition of the value of research products or
services, to pay a commission in excess of that which another
broker or dealer might have charged for effecting the same
transaction. Research products or services furnished by brokers
and dealers may be used in servicing any or all of the clients of
the Adviser and not all such research products or services are
used in connection with the management of the Funds.
With respect to a Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis, the
Adviser may also consider the part, if any, played by the broker
or dealer in bringing the security involved to the Adviser's
attention, including investment research related to the security
and provided to the Fund.
The table below shows information on brokerage commissions
paid by the Funds:
<TABLE>
<CAPTION>
GROWTH & GROWTH SPECIAL CAPITAL
INCOME BALANCED STOCK SPECIAL VENTURE OPPORTUNITIES
FUND FUND FUND FUND FUND FUND
--------- -------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total amount of
brokerage commissions
paid during fiscal
year ended 9/30/95 $ 249,668 $ 123,109 $ 311,583 $ ,728,795 $ 137,260 $ 226,682
Amount of commissions
paid to brokers or
dealers who supplied
research services to
the Adviser 228,248 123,109 301,411 1,581,227 109,997 213,242
Total dollar amount
involved in such
transactions 119,706,805 65,285,929 201,679,220 734,581,006 40,345,000 97,106,560
Amount of commissions
paid to brokers or
dealers that were
allocated to such
brokers or dealers
by the Fund's portfolio
manager because of
research services
provided to the Fund 34,338 27,050 97,685 373,980 15,421 65,281
Total dollar amount
involved in such
transactions 17,360,000 18,050,000 55,816,000 216,728,000 6,414,000 34,322,000
Total amount of
brokerage commissions
paid during fiscal
year ended 9/30/94 260,263 85,902 275,659 1,915,383 N/A 176,246
Total amount of
brokerage commissions
paid during fiscal year
ended 9/30/93 132,301 169,445 264,423 1,091,659 N/A 145,280
</TABLE>
The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian as
a soliciting dealer in connection with any tender offer for Fund
portfolio securities. The custodian will credit any such fees
received against its custodial fees. In addition, the Board of
Trustees has reviewed the legal developments pertaining to and the
practicability of attempting to recapture underwriting discounts
or selling concessions when portfolio securities are purchased in
underwritten offerings. However, the Board has been advised by
counsel that recapture by a mutual fund currently is not permitted
under the Rules of Fair Practice of the National Association of
Securities Dealers.
ADDITIONAL INCOME TAX CONSIDERATIONS
Each Fund intends to comply with the special provisions of
the Internal Revenue Code that relieve it of federal income tax to
the extent of its net investment income and capital gains
currently distributed to shareholders.
Because dividend and capital gain distributions reduce net
asset value, a shareholder who purchases shares shortly before a
record date will, in effect, receive a return of a portion of his
investment in such distribution. The distribution would
nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income
tax purposes the shareholder's original cost would continue as his
tax basis.
Each Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
To the extent a Fund invests in foreign securities, it may be
subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of the Fund's total
assets at the close of any fiscal year consist of stock or
securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders
of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even
though not actually received, (ii) treat such respective pro rata
shares as foreign income taxes paid by them, and (iii) deduct such
pro rata shares in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to
applicable limitations, against their United States income taxes.
Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata
portion of foreign taxes paid by the Fund, although such
shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit may
be required to treat a portion of dividends received from the Fund
as separate category income for purposes of computing the
limitations on the foreign tax credit available to such
shareholders. Tax-exempt shareholders will not ordinarily benefit
from this election relating to foreign taxes. Each year, the Fund
will notify shareholders of the amount of (i) each shareholder's
pro rata share of foreign income taxes paid by the Fund and (ii)
the portion of Fund dividends which represents income from each
foreign country, if the Fund qualifies to pass along such credit.
INVESTMENT PERFORMANCE
A Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of
the period and subtracting one. For a given period, an "Average
Annual Total Return" may be computed by finding the average annual
compounded rate that would equate a hypothetical initial amount
invested of $1,000 to the ending redeemable value.
Average Annual Total Return is computed as follows:
n
ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the end
of the period (or fractional portion thereof).
For example, for a $1,000 investment in a Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at September 30, 1995 were:
TOTAL TOTAL RETURN AVERAGE ANNUAL
RETURN RETURN PERCENTAGE TOTAL RETURN
------- ----------------- -------------
Growth & Income Fund
1 year $1,211 21.12% 21.12%
5 years 2,104 110.36 16.04
Life of Fund* 2,358 135.83 10.60
Balanced Fund
1 year 1,145 14.49 14.49
5 years 1,897 89.70 13.66
10 years 2,993 199.26 11.58
Growth Stock Fund
1 year 1,282 28.18 28.18
5 years 2,149 114.94 16.54
10 years 3,946 294.61 14.71
Special Fund
1 year 1,146 14.60 14.60
5 years 2,145 114.46 16.48
10 years 4,507 350.72 16.25
Special Venture Fund
Life of Fund* 1,270 26.96 N/A
Capital Opportunities Fund
1 year 1,375 37.46 37.46
5 years 3,066 206.63 25.12
10 years 3,984 298.42 14.82
______________________________________
*Life of Fund is from its date of public offering: 3/23/87 for
Growth & Income Fund and 10/17/94 for Special Venture Fund.
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of future
results. The performance of a Fund is a result of conditions in
the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful
in reviewing a Fund's performance and in providing some basis for
comparison with other investment alternatives, it should not be
used for comparison with other investments using different
reinvestment assumptions or time periods.
In advertising and sales literature, a Fund may compare its
performance with that of other mutual funds, indexes or averages
of other mutual funds, indexes of related financial assets or
data, and other competing investment and deposit products
available from or through other financial institutions. The
composition of these indexes or averages differs from that of the
Funds. Comparison of a Fund to an alternative investment should
be made with consideration of differences in features and expected
performance.
All of the indexes and averages noted below will be obtained
from the indicated sources or reporting services, which the Funds
believe to be generally accurate. A Fund may also note its
mention or recognition in newspapers, magazines, or other media
from time to time. However, the Funds assume no responsibility
for the accuracy of such data. Newspapers and magazines which
might mention the Funds include, but are not limited to, the
following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
All of the Funds may compare their performance to the
Consumer Price Index (All Urban), a widely recognized measure of
inflation.
Each Fund's performance may be compared to the following
indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite
Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite
Index
Standard & Poor's 400 Industrials NASDAQ Composite
Wilshire 5000 NASDAQ Industrials
(These indexes are widely (These indexes generally reflect the
recognized indicators of general performance of stocks traded in the
U.S. stock market results.) indicated markets.)
In addition, the Funds may compare performance as indicated
below:
<TABLE>
<CAPTION>
BENCHMARK FUND(S)
<S> <C>
Value Line Index Capital Opportunities Fund,
(Widely recognized indicator of the Special Fund, Special Venture Fund
performance of small- and medium-sized
company stocks)
Lipper Capital Appreciation Fund Index Capital Opportunities Fund
Lipper Capital Appreciation Fund Average Capital Opportunities Fund
Lipper Growth & Income Fund Index Growth & Income Fund
Lipper Growth & Income Fund Average Growth & Income Fund
Lipper Growth Fund Index Growth Stock Fund, Special Fund
Lipper Growth Fund Average Growth Stock Fund, Special Fund
Lipper Balanced Fund Index Balanced Fund
Lipper Balanced Fund Average Balanced Fund
Lipper Small Company Growth Fund Index Special Venture Fund
Lipper Small Company Growth Fund Average Special Venture Fund
Lipper Equity Fund Average All Funds
Lipper General Domestic Equity Fund Average All Funds
ICD Aggressive Growth and Long-Term
Growth Funds Average Growth & Income Fund, Growth Stock Fund, Special Fund,
Special Venture Fund, Capital Opportunities Fund
ICD Aggressive Growth Fund Large Index Capital Opportunities Fund, Special Fund, Special Venture
Fund
ICD Aggressive Growth Fund Small Index Capital Opportunities Fund, Special Fund, Special Venture
Fund
ICD Aggressive Growth Funds Average Special Fund, Special Venture Fund, Capital Opportunities
Fund
ICD All Equity Funds Average Growth Stock Fund, Special Fund, Special Venture Fund,
Capital Opportunities Fund
ICD Balanced Funds Average Growth & Income Fund, Total Return Fund
ICD Balance Funds Index Total Return Fund
ICD Both Equity Funds Average Growth & Income Fund, Total Return Fund
ICD General Equity Average* All
ICD Growth & Income Funds Average Growth & Income Fund, Total Return Fund
ICD Growth & Income Funds Index Growth & Income Fund, Total Return Fund
ICD Long-Term Growth Funds Average Growth & Income Fund, Capital Opportunities Fund, Growth
Stock Fund, Special Fund, Special Venture Fund
ICD Long-Term Growth Funds Index Growth & Income Fund, Capital Opportunities Fund, Growth
Stock Fund, Special Fund, Special Venture Fund
ICD Total Return Funds Average Growth & Income Fund, Total Return Fund
ICD Total Return Funds Index Total Return Fund
Morningstar Aggressive Growth Fund Average Capital Opportunities Fund
Morningstar Growth Fund Average Growth Stock Fund, Special Fund
Morningstar Growth & Income Fund Average Growth & Income Fund
Morningstar Balanced Fund Average Balanced Fund
Morningstar Small Company Growth
Fund Average Special Venture Fund
Morningstar Domestic Stock Average All Funds
Morningstar Hybrid Average Balanced Fund
Morningstar Total Fund Average All Funds
</TABLE>
*Includes ICD Aggressive Growth, Growth & Income, Long-Term
Growth, and Total Return averages.
The ICD Indexes reflect the unweighted average total return
of the largest twenty funds within their respective category as
calculated and published by ICD.
The Lipper averages are unweighted averages of total return
performance as classified, calculated, and published by Lipper.
Lipper Growth Fund index reflects the net asset value weighted
total return of the largest thirty growth funds and thirty growth
and income funds, respectively, as calculated and published by
Lipper.
The Lipper, ICD, and Morningstar averages are unweighted
averages of total return performance of mutual funds as
classified, calculated, and published by these independent
services that monitor the performance of mutual funds. The Funds
may also use comparative performance as computed in a ranking by
Lipper or category averages and rankings provided by another
independent service. Should Lipper or another service reclassify
a Fund to a different category or develop (and place a Fund into)
a new category, that Fund may compare its performance or ranking
with those of other funds in the newly assigned category, as
published by the service.
A Fund may also cite its rating, recognition, or other
mention by Morningstar or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is
computed by subtracting a Fund's risk score (which is a function
of the Fund's monthly returns less the 3-month T-bill return) from
the Fund's load-adjusted total return score. This numerical score
is then translated into rating categories, with the top 10%
labeled five star, the next 22.5% labeled four star, the next 35%
labeled three star, the next 22.5% labeled two star, and the
bottom 10% one star. A high rating reflects either above-average
returns or below-average risk, or both.
Of course, past performance is not indicative of future
results.
________________
To illustrate the historical returns on various types of
financial assets, the Funds may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment
firm. Ibbotson constructs (or obtains) very long-term (since
1926) total return data (including, for example, total return
indexes, total return percentages, average annual total returns
and standard deviations of such returns) for the following asset
types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
_____________________
A Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such example
is reflected in the chart below, which shows the effect of tax
deferral on a hypothetical investment. This chart assumes that an
investor invested $2,000 a year on January 1, for any specified
period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 6%, 8% or 10%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average cost
per share.
Like any investment strategy, dollar cost averaging can't
guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
From time to time, a Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[SERVICE MARK] and the Stein Roe Counselor Preferred [SERVICE
MARK] programs and asset allocation and other investment
strategies.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion
as to the credit quality of the security being rated. However,
the ratings are general and are not absolute standards of quality
or guarantees as to the creditworthiness of an issuer.
Consequently, the Adviser believes that the quality of debt
securities in which a Fund invests should be continuously reviewed
and that individual analysts give different weightings to the
various factors involved in credit analysis. A rating is not a
recommendation to purchase, sell or hold a security because it
does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information furnished
by the issuer or obtained by the rating services from other
sources which they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability
of such information, or for other reasons.
The following is a description of the characteristics of
ratings of corporate debt securities used by Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
RATINGS BY MOODY'S
AAA. Bonds rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or an exceptionally stable margin and principal is secure.
Although the various protective elements are likely to change,
such changes as can be visualized are more unlikely to impair the
fundamentally strong position of such bonds.
AA. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA. Bonds rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
CA. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in
each generic rating classification from Aa through B in its
corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for debt in higher rated categories.
BB, B, CCC, CC, AND C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no interest
is being paid.
D. Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears. The D rating is also used
upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same basis
as domestic debt measuring the creditworthiness of the issuer;
ratings of foreign debt do not take into account currency exchange
and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility
or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or
interest return is indexed to equities, commodities, or
currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
-------------------
<PAGE> 1
Statement of Additional Information Dated July 1, 1996
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
STEIN ROE INTERNATIONAL FUND
The Stein Roe International Fund is a series of the Stein Roe
Investment Trust (the "Trust"). Each series of the Trust
represents shares of beneficial interest in a separate portfolio
of securities and other assets, with its own objectives and
policies. This Statement of Additional Information is not a
prospectus, but provides additional information that should be
read in conjunction with the Fund's prospectus dated July 1, 1996,
and any supplements thereto ("Prospectus"). The Prospectus may be
obtained at no charge by telephoning 800-338-2550.
TABLE OF CONTENTS
Page
General Information and History.......................2
Investment Policies...................................3
Portfolio Investments and Strategies..................4
Investment Restrictions..............................18
Additional Investment Considerations.................21
Purchases and Redemptions............................22
Management...........................................23
Financial Statements.................................27
Principal Shareholders...............................27
Investment Advisory Services.........................28
Distributor..........................................30
Transfer Agent.......................................30
Custodian............................................31
Independent Public Accountants.......................32
Portfolio Transactions...............................32
Additional Income Tax Considerations.................34
Investment Performance...............................35
Appendix--Ratings....................................39
<PAGE> 2
GENERAL INFORMATION AND HISTORY
As used herein, "the Fund" refers to the series of the Trust
designated Stein Roe International Fund. Currently eight series
are authorized and outstanding. On February 1, 1996, the name of
the Trust was changed from SteinRoe Investment Trust to Stein Roe
Investment Trust and the name of the Fund was changed from
SteinRoe International Fund to Stein Roe International Fund.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund
through its Global Capital Management division.
Each share of a series is entitled to participate pro rata in
any dividends and other distributions declared by the Board on
shares of that series, and all shares of a series have equal
rights in the event of liquidation of that series.
Each whole share (or fractional share) outstanding on the
record date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the close
of business on the record date (for example, a share having a net
asset value of $10.50 would be entitled to 10.5 votes). As a
business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for
purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory
contract. If requested to do so by the holders of at least 10% of
the Trust's outstanding shares, the Trust will call a special
meeting for the purpose of voting upon the question of removal of
a trustee or trustees and will assist in the communications with
other shareholders as if the Trust were subject to Section 16(c)
of the Investment Company Act of 1940. All shares of all series
of the Trust are voted together in the election of trustees. On
any other matter submitted to a vote of shareholders, shares are
voted in the aggregate and not by individual series, except that
shares are voted by individual series when required by the
Investment Company Act of 1940 or other applicable law, or when
the Board of Trustees determines that the matter affects only the
interests of one or more series, in which case shareholders of the
unaffected series are not entitled to vote on such matters.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE
The Fund may in the future seek to achieve its objective by
pooling its assets with assets of other mutual funds managed by
the Adviser for investment in another mutual fund having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The Adviser is expected to manage any such mutual
fund in which a Fund would invest. Such investment would be
subject to determination by the Trustees that it was in the best
interests of the Fund and its shareholders, and shareholders would
receive advance notice of any such change.
<PAGE> 3
INVESTMENT POLICIES
In pursuing its objective, the Fund will invest as described
below and may employ the investment techniques described in the
Prospectus and under Portfolio Investments and Strategies in this
Statement of Additional Information. The Fund's investment
objective is non-fundamental and may be changed by the Board of
Trustees without the approval of a "majority of the outstanding
voting securities" /1/ of the Fund. In pursuing its investment
objective, the Fund may invest in debt securities. Investments in
debt securities are limited to those that are within the four
highest grades assigned by a nationally recognized statistical
rating organization or, if unrated, deemed to be of comparable
quality by the Adviser (referred to as "investment grade"). If
the rating of a security held by the Fund is lost or reduced, the
Fund is not required to sell the security, but the Adviser will
consider such fact in determining whether the Fund should continue
to hold the security.
The Fund's investment objective is to seek long-term growth
of capital by investing primarily in a diversified portfolio of
foreign securities. Current income is not a primary factor in the
selection of portfolio securities. The Fund invests primarily in
common stocks and other equity-type securities (such as preferred
stocks, securities convertible or exchangeable for common stocks,
and warrants or rights to purchase common stocks). The Fund may
invest in securities of smaller emerging companies as well as
securities of well-seasoned companies of any size. Smaller
companies, however, involve higher risks in that they typically
have limited product lines, markets, and financial or management
resources. In addition, the securities of smaller companies may
trade less frequently and have greater price fluctuation than
larger companies, particularly those operating in countries with
developing markets.
The Fund diversifies its investments among several countries
and does not concentrate investments in any particular industry.
In pursuing its objective, the Fund varies the geographic
allocation and types of securities in which it invests based on
the Adviser's continuing evaluation of economic, market, and
political trends throughout the world. While the Fund has not
established limits on geographic asset distribution, it ordinarily
invests in the securities markets of at least three countries
outside the United States, including but not limited to Western
European countries (such as Belgium, France, Germany, Ireland,
Italy, The Netherlands, the countries of Scandinavia, Spain,
Switzerland, and the United Kingdom); countries in the Pacific
Basin (such as Australia, Hong Kong, Japan, Malaysia, the
Philippines, Singapore, and Thailand); and countries in the
Americas (such as Argentina, Brazil, Chile, and Mexico).
Under normal market conditions, the Fund will invest at least
65% of its total assets (taken at market value) in foreign
securities. If, however, investments in foreign
- ------------------
/1/ A "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Fund.
- ------------------
<PAGE> 4
securities appear to be relatively unattractive in the judgment of
the Adviser because of current or anticipated adverse political or
economic conditions, the Fund may hold cash or invest any portion
of its assets in securities of the U.S. Government and equity and
debt securities of U.S. companies, as a temporary defensive
strategy. To meet liquidity needs, the Fund may also hold cash in
domestic and foreign currencies and invest in domestic and foreign
money market securities (including repurchase agreements and
"synthetic" foreign money market positions).
In the past, the U.S. Government has from time to time
imposed restrictions, through taxation and otherwise, on foreign
investments by U.S. investors such as the Fund. If such
restrictions should be reinstated, it might become necessary for
the Fund to invest all or substantially all of its assets in U.S.
securities. In such an event, the Fund would review its
investment objective and policies to determine whether changes are
appropriate.
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, forward contracts, securities
collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each case,
the value of the instrument or security is "derived" from the
performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because it is more
efficient or less costly than direct investment that cannot be
readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and directions
of movements in currency exchange rates, security prices, interest
rates and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than exchange-traded
Derivatives.
The Fund does not currently intend to invest more than 5% of
its net assets in any type of Derivative, except for options,
futures contracts, futures options, and forward contracts. (See
discussion of options and futures below.)
<PAGE> 5
DEFENSIVE INVESTMENTS
When the Adviser considers a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES
The Fund invests primarily in foreign securities, which may
entail a greater degree of risk (including risks relating to
exchange rate fluctuations, tax provisions, or expropriation of
assets) than does investment in securities of domestic issuers.
The Fund may also purchase foreign securities in the form of
American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs), or other securities representing underlying shares of
foreign issuers. Positions in these securities are not
necessarily denominated in the same currency as the common stocks
into which they may be converted. ADRs are receipts typically
issued by an American bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts
evidencing a similar arrangement. Generally, ADRs, in registered
form, are designed for the U.S. securities markets and EDRs, in
bearer form, are designed for use in European securities markets.
The Fund may invest in sponsored or unsponsored ADRs. In the case
of an unsponsored ADR, the Fund is likely to bear its
proportionate share of the expenses of the depository and it may
have greater difficulty in receiving shareholder communications
than it would have with a sponsored ADR.
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, the Fund's
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar value
of the yen-denominated stock will fall. (See discussion of
transaction hedging and portfolio hedging under Currency Exchange
Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions in which are generally denominated in foreign
currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in
<PAGE> 6
developing as well as developed countries; and sometimes less
advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements.
Although the Fund will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
The Fund's foreign currency exchange transactions are limited
to transaction hedging and portfolio hedging involving either
specific transactions or portfolio positions, except to the extent
described below under "Synthetic Foreign Money Market Positions."
Transaction hedging is the purchase or sale of forward contracts
with respect to specific receivables or payables of the Fund
arising in connection with the purchase and sale of its portfolio
securities. Portfolio hedging is the use of forward contracts
with respect to portfolio security positions denominated or quoted
in a particular foreign currency. Portfolio hedging allows the
Fund to limit or reduce its exposure in a foreign currency by
entering into a forward contract to sell such foreign currency (or
another foreign currency that acts as a proxy for that currency)
at a future date for a price payable in U.S. dollars so that the
value of the foreign-denominated portfolio securities can be
approximately matched by a foreign-denominated liability. The
Fund may not engage in portfolio hedging with respect to the
currency of a particular country to an extent greater than the
aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in that
particular currency, except that the Fund may hedge all or part of
its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currencies or currency
act as an effective proxy for other currencies. In such a case,
the Fund may enter into a forward contract where the amount of the
foreign currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into
separate forward contracts for each currency held in the Fund.
The Fund may not engage in "speculative" currency exchange
transactions.
At the maturity of a forward contract to deliver a particular
currency, the Fund may either sell the portfolio security related
to such contract and make delivery of the currency, or it may
retain the security and either acquire the currency on the spot
market or terminate its contractual obligation to deliver the
currency by purchasing an
<PAGE> 7
offsetting contract with the same currency trader obligating it to
purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for the Fund
to purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell on the
spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of
currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between
the Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price
of the currency it has agreed to sell. A default on the contract
would deprive the Fund of unrealized profits or force the Fund to
cover its commitments for purchase or sale of currency, if any, at
the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to the Fund of engaging in currency
exchange transactions varies with such factors as the currency
involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually
conducted on a principal basis, no fees or commissions are
involved.
Synthetic Foreign Money Market Positions. The Fund may
invest in money market instruments denominated in foreign
currencies. In addition to, or in lieu of, such direct
investment, the Fund may construct a synthetic foreign money
market position by (a) purchasing a money market instrument
denominated in one currency, generally U.S. dollars, and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
For example, a synthetic money market position in Japanese yen
could be constructed by purchasing a U.S. dollar money market
instrument, and entering concurrently into a forward contract to
deliver a corresponding amount of U.S. dollars in exchange for
Japanese yen on a specified date and at a
<PAGE> 8
specified rate of exchange. Because of the availability of a
variety of highly liquid short-term U.S. dollar money market
instruments, a synthetic money market position utilizing such U.S.
dollar instruments may offer greater liquidity than direct
investment in foreign currency money market instruments. The
result of a direct investment in a foreign currency and a
concurrent construction of a synthetic position in such foreign
currency, in terms of both income yield and gain or loss from
changes in currency exchange rates, in general should be similar,
but would not be identical because the components of the
alternative investments would not be identical. Except to the
extent a synthetic foreign money market position consists of a
money market instrument denominated in a foreign currency, the
synthetic foreign money market position shall not be deemed a
"foreign security" for purposes of the policy that, under normal
conditions, the Fund will invest at least 65% of its total assets
in foreign securities.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (5) under Investment Restrictions in
this Statement of Additional Information, the Fund may lend its
portfolio securities to broker-dealers and banks. Any such loan
must be continuously secured by collateral in cash or cash
equivalents maintained on a current basis in an amount at least
equal to the market value of the securities loaned by the Fund.
The Fund would continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities loaned, and
would also receive an additional return that may be in the form of
a fixed fee or a percentage of the collateral. The Fund would
have the right to call the loan and obtain the securities loaned
at any time on notice of not more than five business days. The
Fund would not have the right to vote the securities during the
existence of the loan but would call the loan to permit voting of
the securities if, in the Adviser's judgment, a material event
requiring a shareholder vote would otherwise occur before the loan
was repaid. In the event of bankruptcy or other default of the
borrower, the Fund could experience both delays in liquidating the
loan collateral or recovering the loaned securities and losses,
including (a) possible decline in the value of the collateral or
in the value of the securities loaned during the period while the
Fund seeks to enforce its rights thereto, (b) possible subnormal
levels of income and lack of access to income during this period,
and (c) expenses of enforcing its rights.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements, provided that
it will not invest more than 15% of net assets in repurchase
agreements maturing in more than seven days and any other illiquid
securities. A repurchase agreement is a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
<PAGE> 9
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS
The Fund may purchase securities on a when-issued or delayed-
delivery basis. Although the payment and interest terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed. The Fund makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities
before settlement date if the Adviser deems it advisable for
investment reasons. The Fund may utilize spot and forward foreign
currency exchange transactions to reduce the risk inherent in
fluctuations in the exchange rate between one currency and another
when securities are purchased or sold on a when-issued or delayed-
delivery basis.
The Fund may enter into reverse repurchase agreements with
banks and securities dealers. A reverse repurchase agreement is a
repurchase agreement in which the Fund is the seller of, rather
than the investor in, securities and agrees to repurchase them at
an agreed-upon time and price. Use of a reverse repurchase
agreement may be preferable to a regular sale and later repurchase
of securities because it avoids certain market risks and
transaction costs.
At the time the Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S. Government
securities or other "high-grade" debt obligations) of the Fund
having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the
Fund and held by the custodian throughout the period of the
obligation. The use of these investment strategies, as well as
borrowing under a line of credit as described below, may increase
net asset value fluctuation.
CONVERTIBLE SECURITIES
By investing in convertible securities, the Fund obtains the
right to benefit from the capital appreciation potential in the
underlying stock upon exercise of the conversion right, while
earning higher current income than would be available if the stock
were purchased directly. In determining whether to purchase a
convertible, the Adviser will consider substantially the same
criteria that would be considered in purchasing the underlying
stock. While convertible securities purchased by the Fund are
frequently rated investment grade, the Fund also may purchase
unrated securities or securities rated below investment grade if
the securities meet the Adviser's other investment criteria.
Convertible securities rated below investment grade (a) tend to be
more sensitive to interest rate and economic changes, (b) may be
obligations of issuers who are less creditworthy than issuers of
higher quality convertible securities, and (c) may be more thinly
traded due to such securities being less well known to investors
than either common stock or conventional debt securities. As a
result, the Adviser's own investment research and analysis tends
to be more important in the purchase of such securities than other
factors.
<PAGE> 10
SHORT SALES
The Fund may make short sales "against the box." In a short
sale, the Fund sells a borrowed security and is required to return
the identical security to the lender. A short sale "against the
box" involves the sale of a security with respect to which the
Fund already owns an equivalent security in kind and amount. A
short sale "against the box" enables the Fund to obtain the
current market price of a security which it desires to sell but is
unavailable for settlement.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately
placed but that are eligible for purchase and sale under Rule 144A
under the 1933 Act. That Rule permits certain qualified
institutional buyers, such as the Fund, to trade in privately
placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund's restriction of
investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is
liquid or not is a question of fact. In making this
determination, the Adviser will consider the trading markets for
the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser could consider
the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market,
and (4) nature of the security and of marketplace trades (e.g.,
the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored and, if as a result of
changed conditions, it is determined that a Rule 144A security is
no longer liquid, the Fund's holdings of illiquid securities would
be reviewed to determine what, if any, steps are required to
assure that the Fund does not invest more than 15% of its assets
in illiquid securities. Investing in Rule 144A securities could
have the effect of increasing the amount of the Fund's assets
invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities. The Fund does not
expect to invest as much as 5% of its total assets in Rule 144A
securities that have not been deemed to be liquid by the Adviser.
(See restriction (m) under Investment Restrictions.)
LINE OF CREDIT
Subject to restriction (6) under Investment Restrictions in
this Statement of Additional Information, the Fund may establish
and maintain a line of credit with a major bank in order to permit
borrowing on a temporary basis to meet share redemption requests
in circumstances in which temporary borrowing may be preferable to
liquidation of portfolio securities.
PORTFOLIO TURNOVER
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
that portfolio securities must be held.
<PAGE> 11
Portfolio turnover can occur for a number of reasons such as
general conditions in the securities markets, more favorable
investment opportunities in other securities, or other factors
relating to the desirability of holding or changing a portfolio
investment. Because of the Fund's flexibility of investment and
emphasis on growth of capital, it may have greater portfolio
turnover than that of mutual funds that have primary objectives of
income or maintenance of a balanced investment position. The
future turnover rate may vary greatly from year to year. A high
rate of portfolio turnover in the Fund, if it should occur, would
result in increased transaction expense, which must be borne by
the Fund. High portfolio turnover may also result in the
realization of capital gains or losses and, to the extent net
short-term capital gains are realized, any distributions resulting
from such gains will be considered ordinary income for federal
income tax purposes. (See Risks and Investment Considerations and
Distributions and Income Taxes in the Prospectus, and Additional
Income Tax Considerations in this Statement of Additional
Information.)
OPTIONS ON SECURITIES AND INDEXES
The Fund may purchase and sell put options and call options
on securities, indexes or foreign currencies in standardized
contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ. The Fund may
purchase agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium, the
right to buy from (call) or sell to (put) the seller (writer) of
the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the
term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver
the underlying security or foreign currency upon payment of the
exercise price or to pay the exercise price upon delivery of the
underlying security or foreign currency. Upon exercise, the
writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An
index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators.)
The Fund will write call options and put options only if they
are "covered." For example, in the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or,
if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its
custodian) upon conversion or exchange of other securities held in
its portfolio.
<PAGE> 12
If an option written by the Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by the Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase
the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of
the option, the volatility of the underlying security or index,
and the time remaining until the expiration date.
A put or call option purchased by the Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by the Fund is recorded as
a deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid
and asked prices.
Risks Associated with Options. There are several risks
associated with transactions in options. For example, there are
significant differences between the securities markets, the
currency markets, and the options markets that could result in an
imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or
unexpected events.
There can be no assurance that a liquid market will exist
when the Fund seeks to close out an option position. If the Fund
were unable to close out an option that it had purchased on a
security, it would have to exercise the option in order to realize
any profit or the option would expire and become worthless. If
the Fund were unable to close out a covered call option that it
had written on a security, it would not be able to sell the
underlying security until the option expired. As the writer of a
covered call option on a security, the Fund foregoes, during the
option's life, the opportunity to profit from increases in the
market value of the security covering the call option above the
sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased or written
by the Fund, the Fund would not be able to close out the option.
If restrictions on exercise were imposed, the Fund might be unable
to exercise an option it has purchased.
<PAGE> 13
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Fund may use interest rate futures contracts, index
futures contracts, and foreign currency futures contracts. An
interest rate, index or foreign currency futures contract provides
for the future sale by one party and purchase by another party of
a specified quantity of a financial instrument or the cash value
of an index /2/ at a specified price and time. A public market
exists in futures contracts covering a number of indexes
(including, but not limited to: the Standard & Poor's 500 Index,
the Value Line Composite Index, and the New York Stock Exchange
Composite Index) as well as financial instruments (including, but
not limited to: U.S. Treasury bonds, U.S. Treasury notes,
Eurodollar certificates of deposit, and foreign currencies).
Other index and financial instrument futures contracts are
available and it is expected that additional futures contracts
will be developed and traded.
The Fund may purchase and write call and put futures options.
Futures options possess many of the same characteristics as
options on securities, indexes and foreign currencies (discussed
above). A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price
at any time during the period of the option. Upon exercise of a
call option, the holder acquires a long position in the futures
contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true. The Fund
might, for example, use futures contracts to hedge against or gain
exposure to fluctuations in the general level of stock prices,
anticipated changes in interest rates or currency fluctuations
that might adversely affect either the value of the Fund's
securities or the price of the securities that the Fund intends to
purchase. Although other techniques could be used to reduce or
increase the Fund's exposure to stock price, interest rate and
currency fluctuations, the Fund may be able to achieve its
exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
The Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
The success of any futures transaction depends on the Adviser
correctly predicting changes in the level and direction of stock
prices, interest rates, currency exchange rates and other factors.
Should those predictions be incorrect, the Fund's return might
have been better had the transaction not been attempted; however,
in the absence of the ability to use futures contracts, the
Adviser might have taken portfolio actions in anticipation of the
same market movements with similar investment results but,
presumably, at greater transaction costs.
- --------------------
/2/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made.
- --------------------
<PAGE> 14
When a purchase or sale of a futures contract is made by the
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is
set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit on the
futures contract, which is returned to the Fund upon termination
of the contract, assuming all contractual obligations have been
satisfied. The Fund expects to earn interest income on its
initial margin deposits. A futures contract held by the Fund is
valued daily at the official settlement price of the exchange on
which it is traded. Each day the Fund pays or receives cash,
called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking-to-
market." Variation margin paid or received by the Fund does not
represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would
owe the other if the futures contract had expired at the close of
the previous day. In computing daily net asset value, the Fund
will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by
it. Such margin deposits will vary depending on the nature of the
underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price is
less than the original sale price, the Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original
purchase price, the Fund realizes a capital gain, or if it is
less, the Fund realizes a capital loss. The transaction costs
must also be included in these calculations.
RISKS ASSOCIATED WITH FUTURES
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. In trying to increase or reduce market
exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and in
the portfolio exposure sought. In addition, there are significant
differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a
given transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures
options and the related securities, including technical influences
in futures and futures options trading and differences between the
securities markets and the securities underlying
<PAGE> 15
the standard contracts available for trading. For example, in the
case of index futures contracts, the composition of the index,
including the issuers and the weighting of each issue, may differ
from the composition of the Fund's portfolio, and, in the case of
interest rate futures contracts, the interest rate levels,
maturities, and creditworthiness of the issues underlying the
futures contract may differ from the financial instruments held in
the Fund's portfolio. A decision as to whether, when and how to
use futures contracts involves the exercise of skill and judgment,
and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected stock price or
interest rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock
index futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will exist at
a time when the Fund seeks to close out a futures or futures
option position. The Fund would be exposed to possible loss on
the position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active
secondary market will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
the Fund may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with the
Fund's investment objective.
The Fund will not enter into a futures contract or purchase
an option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by the Fund plus premiums paid
by it for open futures option positions, less the amount by which
any such positions are "in-the-money," /3/ would exceed 5% of the
Fund's total assets.
- -------------------
/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- -------------------
<PAGE> 16
When purchasing a futures contract or writing a put option on
a futures contract, the Fund must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contract. When
writing a call option on a futures contract, the Fund similarly
will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is
in-the-money until the option expires or is closed out by the
Fund.
The Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Fund has written
call options on specific securities in its portfolio, the value of
those securities will be deducted from the current market value of
the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," the Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of the Fund, after taking into account unrealized profits
and unrealized losses on any such contracts it has entered into
[in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section 190.01(x)
of the Commission Regulations) may be excluded in computing such
5%].
As long as the Fund continues to sell its shares in certain
states, the Fund's options and futures transactions will also be
subject to certain non-fundamental investment restrictions set
forth under Investment Restrictions in this Statement of
Additional Information.
TAXATION OF OPTIONS AND FUTURES
If the Fund exercises a call or put option that it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by the Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by the Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written
<PAGE> 17
by the Fund, the difference between the cash paid at exercise and
the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by the Fund was in-
the-money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If the Fund writes an equity call option /4/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities covering
the option, may be subject to deferral until the securities
covering the option have been sold.
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If the
Fund delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, the Fund generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of futures
contracts or writing of call options (or futures call options) or
buying put options (or futures put options) that are intended to
hedge against a change in the value of securities held by the
Fund: (1) will affect the holding period of the hedged securities;
and (2) may cause unrealized gain or loss on such securities to be
recognized upon entry into the hedge.
If the Fund were to enter into a short index future, short
index futures option or short index option position and the Fund's
portfolio were deemed to "mimic" the performance of the index
underlying such contract, the option or futures contract position
and the Fund's stock positions would be deemed to be positions in
a mixed straddle, subject to the above-mentioned loss deferral
rules.
- ----------------
/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500
index).
- ----------------
<PAGE> 18
In order for the Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities held
for less than three months must be limited to less than 30% of the
Fund's annual gross income. Any net gain realized from futures
(or futures options) contracts will be considered gain from the
sale of securities and therefore be qualifying income for purposes
of the 90% requirement. In order to avoid realizing excessive
gains on securities held less than three months, the Fund may be
required to defer the closing out of certain positions beyond the
time when it would otherwise be advantageous to do so.
The Fund distributes to shareholders annually any net capital
gains that have been recognized for federal income tax purposes
(including year-end mark-to-market gains) on options and futures
transactions. Such distributions are combined with distributions
of capital gains realized on the Fund's other investments, and
shareholders are advised of the nature of the payments.
INVESTMENT RESTRICTIONS
The Fund operates under the following investment
restrictions. The Fund may not:
(1) with respect to 75% of its total assets, invest more than
5% of its total assets, taken at market value at the time of a
particular purchase, in the securities of a single issuer, except
for securities issued or guaranteed by the government of the U.S.,
or any of its agencies or instrumentalities or repurchase
agreements for such securities and except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(2) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer,
except that all or substantially all of the assets of the Fund may
be invested in another registered investment company having the
same investment objective and substantially similar investment
policies as the Fund;
(3) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities Act of
1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale, except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real
<PAGE> 19
estate or interests therein), commodities, or commodity contracts,
except that it may enter into (a) futures and options on futures
and (b) forward contracts;
(5) make loans, although the Fund may (a) lend portfolio
securities and participate in an interfund lending program with
other Stein Roe Funds provided that no such loan may be made if,
as a result, the aggregate of such loans would exceed 33 1/3% of
the value of the Fund's total assets (taken at market value at the
time of such loans); (b) purchase money market instruments and
enter into repurchase agreements; and (c) acquire publicly-
distributed or privately-placed debt securities;
(6) borrow except that the Fund may (a) borrow for non-
leveraging, temporary or emergency purposes, (b) engage in reverse
repurchase agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of the Fund's total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law, and (c) enter into futures and options
transactions; the Fund may borrow from banks, other Stein Roe
Funds, and other persons to the extent permitted by applicable
law;
(7) invest in a security if more than 25% of its total assets
(taken at market value at the time of a particular purchase) would
be invested in the securities of issuers in any particular
industry, /5/ except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and except that all or substantially
all of the assets of the Fund may be invested in another
registered investment company having the same investment objective
and substantially similar investment policies as the Fund; or
(8) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
The above restrictions are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities," as defined above. The Fund is also subject to
the following non-fundamental restrictions and policies, which may
be changed by the Board of Trustees. None of the following
restrictions shall prevent the Fund from investing all or
substantially all of its assets in another investment company
having the same investment objective and substantially the same
investment policies as the Fund. The Fund may not:
(a) invest in any of the following: (i) interests in oil,
gas, or other mineral leases or exploration or development
programs (except readily marketable securities, including but not
limited to master limited partnership interests, that may
represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls, straddles,
spreads, or any combination thereof (except that the Fund may
enter into transactions in options, futures, and options on
futures); (iii) shares of other open-end investment companies,
except in connection with a merger, consolidation,
- ------------------
/5/ For purposes of this investment restriction, the Fund uses
industry classifications contained in Morgan Stanley Capital
International Perspective, which is published by Morgan Stanley,
an international investment banking and brokerage firm.
- ------------------
<PAGE> 20
acquisition, or reorganization; and (iv) limited partnerships in
real estate unless they are readily marketable;
(b) invest in companies for the purpose of exercising control
or management;
(c) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of the Fund's total assets (valued at time of
purchase) in the case of any one other investment company and 10%
of such assets (valued at time of purchase) in the case of all
other investment companies in the aggregate; any such purchases
are to be made in the open market where no profit to a sponsor or
dealer results from the purchase, other than the customary
broker's commission, except for securities acquired as part of a
merger, consolidation or acquisition of assets;
(d) purchase or hold securities of an issuer if 5% of the
securities of such issuer are owned by those officers, trustees,
or directors of the Trust or of its investment adviser, who each
own beneficially more than 1/2 of 1% of the securities of that
issuer;
(e) mortgage, pledge, or hypothecate its assets, except as
may be necessary in connection with permitted borrowings or in
connection with options, futures, and options on futures;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American Stock
Exchange or a recognized foreign exchange;
(g) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;
(h) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered through
the facilities of a recognized securities association or listed on
a recognized exchange or similar entity;
(i) purchase a put or call option if the aggregate premiums
paid for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
(j) purchase securities on margin (except for use of short-
term credits as are necessary for the clearance of transactions),
or sell securities short unless (i) the Fund owns or has the right
to obtain securities equivalent in kind and amount to those sold
short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which the Fund expects to
receive in a recapitalization, reorganization, or other exchange
for securities the Fund contemporaneously owns or has the right to
obtain and provided that transactions in options, futures, and
options on futures are not treated as short sales;
(k) invest more than 5% of its total assets (taken at market
value at the time of a particular investment) in securities of
issuers (other than issuers of federal agency
<PAGE> 21
obligations or securities issued or guaranteed by any foreign
country or asset-backed securities) that, together with any
predecessors or unconditional guarantors, have been in continuous
operation for less than three years ("unseasoned issuers");
(l) invest more than 10% of its total assets (taken at
market value at the time of a particular investment) in restricted
securities, other than securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933;
(m) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in restricted
securities and securities of unseasoned issuers;
(n) invest more than 15% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities, including repurchase agreements maturing in more than
seven days.
Notwithstanding the foregoing investment restrictions, the
Fund may purchase securities pursuant to the exercise of
subscription rights, subject to the condition that such purchase
will not result in the Fund's ceasing to be a diversified
investment company. Far Eastern and European corporations
frequently issue additional capital stock by means of subscription
rights offerings to existing shareholders at a price substantially
below the market price of the shares. The failure to exercise
such rights would result in the Fund's interest in the issuing
company being diluted. The market for such rights is not well
developed in all cases and, accordingly, the Fund may not always
realize full value on the sale of rights. The exception applies
in cases where the limits set forth in the investment restrictions
would otherwise be exceeded by exercising rights or would have
already been exceeded as a result of fluctuations in the market
value of the Fund's portfolio securities with the result that the
Fund would be forced either to sell securities at a time when it
might not otherwise have done so, to forego exercising the rights.
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. It has worked
to build wealth for generations by being guided by three primary
objectives which it believes are the foundation of a successful
investment program. These objectives are preservation of capital,
limited volatility through managed risk, and consistent above-
average returns. Because every investor's needs are different,
Stein Roe mutual funds are designed to accommodate different
investment objectives, risk tolerance levels, and time horizons.
In selecting a mutual fund, investors should ask the following
questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goals.
What is my investment time frame?
<PAGE> 22
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize your
investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks which
will vary depending on investment objective and security type.
However, mutual funds seek to reduce risk through professional
investment management and portfolio diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no guarantee
that they will be able to maintain a stable net asset value of
$1.00 per share, money market funds emphasize safety of principal
and liquidity, but tend to offer lower income potential than bond
funds. Bond funds tend to offer higher income potential than
money market funds but tend to have greater risk of principal and
yield volatility.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information is
incorporated herein by reference. The Prospectus discloses that
you may purchase (or redeem) shares through investment dealers,
banks, or other institutions. It is the responsibility of any
such institution to establish procedures insuring the prompt
transmission to the Trust of any such purchase order. The state
of Texas has asked that the Trust disclose in its Statement of
Additional Information, as a reminder to any such bank or
institution, that it must be registered as a securities dealer in
Texas.
The Fund's net asset value is determined on days on which the
New York Stock Exchange (the "NYSE") is open for trading. The
NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the judgment
of the Board of Trustees, net asset value of the Fund should be
determined on any such day, in which case the determination will
be made at 3:00 p.m., Chicago time.
The Trust intends to pay all redemptions in cash and is
obligated to redeem shares solely in cash up to the lesser of
$250,000 or one percent of the net assets of the Trust during any
90-day period for any one shareholder. However, redemptions in
excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in
kind, the redeeming shareholders might incur transaction costs in
selling the securities received in the redemptions.
<PAGE> 23
Due to the relatively high cost of maintaining smaller
accounts, the Trust reserves the right to redeem shares in any
account for their then-current value (which will be promptly paid
to the investor) if at any time the shares in the account do not
have a value of at least $1,000. An investor will be notified
that the value of his account is less than that minimum and
allowed at least 30 days to bring the value of the account up to
at least $1,000 before the redemption is processed. The Agreement
and Declaration of Trust also authorizes the Trust to redeem
shares under certain other circumstances as may be specified by
the Board of Trustees.
The Trust reserves the right to suspend or postpone
redemptions of shares of the Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the Securities
and Exchange Commission, or the NYSE is closed for other than
customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c)
an emergency, as determined by the Securities and Exchange
Commission, exists, making disposal of portfolio securities or
valuation of net assets of the Fund not reasonably practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held
Name Age with the Trust Principal occupation(s) during past five years
- -------------------- -- ------------------------ -----------------------------------------------
<S> <C> <C> <C>
Gary A. Anetsberger 40 Senior Vice-President Controller of the Mutual Funds division of Stein Roe &
Farnham Incorporated (the "Adviser"); senior vice
president of the Adviser since April, 1996; vice
president of the Adviser, January, 1991 to April, 1996
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of the Adviser
(1) (2) and director of the Adviser since June, 1992; senior
vice president and director of marketing of Citibank
Illinois prior thereto
Jilaine Hummel Bauer 40 Executive Vice-President; General counsel and secretary of the Adviser since
Secretary November, 1995; senior vice president of the Adviser
since April, 1992; vice president of the Adviser prior
thereto
Bruno Bertocci 41 Vice-President Vice president of Colonial Management Associates, Inc.
since January, 1996; senior vice president of the
Adviser since May, 1995; global equity portfolio
manager with Rockefeller & Co. prior thereto
Kenneth L. Block (3) 76 Trustee Chairman emeritus of A. T. Kearney, Inc. (international
management consultants)
<PAGE> 24
William W. Boyd (3) 69 Trustee Chairman and director of Sterling Plumbing Group, Inc.
(manufacturer of plumbing products) since 1992;
chairman, president, and chief executive officer of
Sterling Plumbing Group, Inc. prior thereto
David P. Brady 32 Vice-President Vice president of the Adviser since November, 1995;
portfolio manager for the Adviser since 1993; equity
investment analyst, State Farm Mutual Automobile
Insurance Company prior thereto
Thomas W. Butch 39 Vice-President Senior vice president of the Adviser since September,
1994; first vice president, corporate communications,
of Mellon Bank Corporation prior thereto
N. Bruce Callow 50 Executive Vice-President President of the Investment Counsel division of the
Adviser since June, 1994; senior vice president of
trust and financial services for The Northern Trust
prior thereto
Daniel K. Cantor 36 Vice-President Senior vice president of the Adviser
Lindsay Cook (1) 44 Trustee Senior vice president of Liberty Financial Companies,
Inc. (the indirect parent of the Adviser)
E. Bruce Dunn 62 Vice-President Senior vice president of the Adviser
Erik P. Gustafson 32 Vice-President Senior portfolio manager of the Adviser; senior vice
president of the Adviser since April, 1996; vice
president of the Adviser from May, 1994 to April, 1996;
associate of the Adviser from April, 1992 to May, 1994;
associate attorney with Fowler White Burnett Hurley
Banick & Strickroot prior thereto
David P. Harris 32 Vice-President Vice president of Colonial Management Associates, Inc.
since January, 1996; vice president of the Adviser
since May, 1995; global equity portfolio manager with
Rockefeller & Co. prior thereto
Douglas A. Hacker 40 Trustee Senior vice president and chief financial officer,
United Airlines, since July, 1994; senior vice
president--Finance, United Airlines, February, 1993 to
July, 1994; vice president--corporate & fleet planning,
American Airlines, 1991 to February, 1993
Philip D. Hausken 38 Vice-President Vice president of the Adviser since November, 1995;
corporate counsel for the Adviser since July, 1994;
assistant regional director, midwest regional office of
the Securities and Exchange Commission prior thereto
Harvey B. Hirschhorn 46 Vice-President Executive vice president, chief economist, and
investment strategist of the Adviser; director of
research of the Adviser, 1991 to 1995
<PAGE> 25
Stephen P. Lautz 39 Vice-President Vice president of the Adviser since May, 1994;
associate of the Adviser prior thereto
Eric S. Maddix 32 Vice-President Vice president of the Adviser since November, 1995;
portfolio manager or research assistant for the Adviser
since 1987
Lynn C. Maddox 55 Vice-President Senior vice president of the Adviser
Anne E. Marcel 38 Vice-President Vice president of the Adviser since April, 1996;
manager, Mutual Fund Sales & Services of the Adviser
since October, 1994; supervisor of the Counselor
Department of the Adviser from October, 1992 to
October, 1994; vice president of Selected Financial
Services from May, 1990 to March, 1992
Francis W. Morley(3) 76 Trustee Chairman of Employer Plan Administrators and
Consultants Co. (designer, administrator, and
communicator of employee benefit plans)
Charles R. Nelson(3) 53 Trustee Van Voorhis Professor of Political Economy, University
of Washington
Nicolette D. Parrish 46 Vice-President; Senior compliance administrator and assistant secretary
Assistant Secretary of the Adviser since November, 1995; senior legal
assistant for the Adviser prior thereto
Richard B. Peterson 55 Vice-President Senior vice president of the Adviser since June, 1991;
officer of State Farm Investment Management Corporation
prior thereto
Sharon R. Robertson 34 Controller Accounting manager for the Adviser's Mutual Funds
division
Janet B. Rysz 40 Assistant Secretary Senior compliance administrator and assistant secretary
of the Adviser
Gloria J. Santella 38 Vice-President Senior vice president of the Adviser since November,
1995; vice president of the Adviser from January, 1992
to November, 1995; associate of the Adviser prior
thereto
Thomas P. Sorbo 35 Vice-President Senior vice president of the Adviser since January,
1994; vice president of the Adviser from September,
1992 to December, 1993; associate of Travelers
Insurance Company prior thereto
Thomas C. Theobald 58 Trustee Managing partner, William Blair Capital Partners
(private equity fund) since 1994; chief executive
officer and chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
Gordon R. Worley 76 Trustee Private investor
(2) (3)
Hans P. Ziegler 55 Executive Vice-President Chief executive officer of the Adviser since May, 1994;
president of the Investment Counsel division of the
Adviser from July, 1993 to June, 1994; president and
chief executive officer, Pitcairn Financial Management
Group prior thereto
<PAGE> 26
Margaret O. Zwick 29 Treasurer Compliance manager for the Adviser's Mutual Funds
division since August 1995; compliance accountant,
January 1995 to July 1995; section manager, January
1994 to January 1995; supervisor, February 1990 to
December 1993
<FN>
______________________________
(1) Trustee who is an "interested person" of the Trust and of the
Adviser, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope
and results of the audit.
</TABLE>
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by the
Adviser. Ms. Bauer and Mr. Cook are vice presidents of the Fund's
distributor, Liberty Securities Corporation. The address of Mr.
Block is 11 Woodley Road, Winnetka, Illinois 60093; that of Mr.
Boyd is 2900 Golf Road, Rolling Meadows, Illinois 60008; that of
Mr. Cook is 600 Atlantic Avenue, Boston, Massachusetts 02210;
that of Mr. Hacker is P.O. Box 66100, Chicago, IL 60666; that of
Mr. Morley is 20 North Wacker Drive, Suite 2275, Chicago, Illinois
60606; that of Mr. Nelson is Department of Economics, University
of Washington, Seattle, Washington 98195; that of Mr. Theobald is
Suite 3300, 222 West Adams Street, Chicago, IL 60606; that of Mr.
Worley is 1407 Clinton Place, River Forest, Illinois 60305; that
of Messrs. Bertocci, Cantor, and Harris is 1330 Avenue of the
Americas, New York, New York 10019; and that of the other officers
is One South Wacker Drive, Chicago, Illinois 60606.
Officers and trustees affiliated with the Adviser serve
without any compensation from the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or the Adviser are paid an annual retainer
of $8,000 (divided equally among the Funds of the Trust) plus an
attendance fee from each Fund for each meeting of the Board or
committee thereof attended at which business for that Fund is
conducted. The attendance fees (other than for a Nominating
Committee meeting) are based on each Fund's net assets as of the
preceding December 31. For a Fund with net assets of less than
$251 million, the fee is $200 per meeting; with $251 million to
$500 million, $350; with $501 million to $750 million, $500; with
$750 million to $1 billion, $650; and with over $1 billion in net
assets, $800. Each non-interested trustee also receives an
aggregate of $500 for attending each meeting of the Nominating
Committee. The Trust has no retirement or pension plans. The
following table sets forth compensation paid by the Trust during
the fiscal year ended September 30, 1995 to each of the trustees:
Aggregate Total Compensation Paid
Compensation to Trustees from the Trust
Name of from the and the Stein Roe Fund
Trustee* Trust Complex**
------------ ------------ ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Alfred F. Kugel -0- -0-
Kenneth L. Block $26,800 $66,400
William W. Boyd 22,050 58,650
Francis W. Morley 26,200 66,000
Charles R. Nelson 28,550 68,350
Gordon R. Worley 26,200 66,000
_______________
* Messrs. Armour, Boyd, and Cook were elected trustees of the
Trust on January 17, 1995. Mr. Kugel was an affiliated trustee
through January 17, 1995. Messrs. Hacker and Theobald were
elected trustees on June 18, 1996.
** During this period, the Stein Roe Fund Complex consisted of
the six series of Stein Roe Income Trust, four series of Stein
Roe Municipal Trust, eight series of Stein Roe Investment Trust,
and one series of SR&F Base Trust.
FINANCIAL STATEMENTS
Please refer to the Fund's 9/30/95 Financial Statements
(balance sheets and schedules of investments as of 9/30/95 and the
statements of operations, changes in net assets, and notes
thereto) and the report of independent auditors contained in the
9/30/95 Annual Report of the Fund and to the Fund's 3/31/96
Financial Statements (unaudited balance sheets and schedules of
investments as of 3/31/96 and the statements of operations,
changes in net assets, and notes thereto) contained in the 3/31/96
Semiannual Report of the Fund. The Financial Statements and the
report of independent auditors (but no other material from the
Annual Report or the Semiannual Report) are incorporated herein by
reference. The Annual Report and the Semiannual Report may be
obtained at no charge by telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of October 31, 1995, the only person known by the Trust to
own of record or "beneficially" 5% or more of the outstanding
shares of the Fund within the definition of that term as contained
in Rule 13d-3 under the Securities Exchange Act of 1934 was as
follows:
Approximate Percentage of
Name and Address Outstanding Shares Held
-------------------------------- -------------------------
First Bank National Association* 6.7%
410 N. Michigan Avenue
Chicago, IL 60611
___________________
*Shares held of record, but not beneficially.
The following table shows shares of the Fund held by the
categories of persons indicated, and in each case the approximate
percentage of outstanding shares represented:
CLIENTS OF THE
ADVISER IN THEIR TRUSTEES AND
CLIENT ACCOUNTS OFFICERS
AS OF 10/31/95 AS OF 10/31/95
--------------- ----------------
SHARES SHARES
HELD PERCENT HELD PERCENT
------ ------- ------- --------
5,978,569 71.9% 66,299 **
______________
*The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by the Adviser under Rule 13d-3. However, the
Adviser disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
<PAGE> 28
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated, the Fund's investment
adviser, is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Fund's transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which is a majority-owned subsidiary of Liberty
Mutual Equity Corporation, which is a wholly owned subsidiary of
Liberty Mutual Insurance Company. Liberty Mutual Insurance
Company is a mutual insurance company, principally in the
property/casualty insurance field, organized under the laws of
Massachusetts in 1912.
The directors of the Adviser are Kenneth R. Leibler, C. Allen
Merritt, Jr., Timothy K. Armour, N. Bruce Callow, and Hans P.
Ziegler. Mr. Leibler is President and Chief Executive Officer of
Liberty Financial; Mr. Merritt is Senior Vice President and
Treasurer of Liberty Financial; Mr. Armour is President of the
Adviser's Mutual Funds division; Mr. Callow is President of the
Adviser's Investment Counsel division; and Mr. Ziegler is Chief
Executive Officer of the Adviser. The business address of Messrs.
Leibler and Merritt is Federal Reserve Plaza, Boston,
Massachusetts 02210; and that of Messrs. Armour, Callow, and
Ziegler is One South Wacker Drive, Chicago, Illinois 60606.
The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension and
profit sharing plans, charitable organizations, and other
institutional investors. As of September 30, 1995, the Adviser
managed over $22.9 billion in assets: over $5.5 billion in
equities and over $17.4 billion in fixed income securities
(including $2.3 billion in municipal securities). The $22.9
billion in managed assets included over $5.7 billion held by open-
end mutual funds managed by the Adviser (approximately 21% of the
mutual fund assets were held by clients of the Adviser). These
mutual funds were owned by over 148,000 shareholders. The $5.7
billion in mutual fund assets included over $570 million in over
33,000 IRA accounts. In managing those assets, the Adviser
utilizes a proprietary computer-based information system that
maintains and regularly updates information for approximately
6,500 companies. The Adviser also monitors over 1,400 issues via
a proprietary credit analysis system. At September 30, 1995, the
Adviser employed 17 research analysts and 36 account managers.
The average investment-related experience of these individuals was
20 years.
Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] are professional investment advisory
services offered to Fund shareholders. Each is designed to help
shareholders construct Fund investment portfolios to suit their
individual needs. Based on information shareholders provide about
their financial circumstances, goals, and objectives in response
to a questionnaire, the Adviser's investment professionals create
customized portfolio recommendations for investments in the Fund
and other mutual funds managed by the Adviser. Shareholders
participating in Stein Roe Counselor [SERVICE MARK] are free to
self direct their investments while considering the Adviser's
recommendations; shareholders participating in Stein Roe Counselor
Preferred [SERVICE MARK] enjoy the
<PAGE> 29
added benefit of having the Adviser implement portfolio
recommendations automatically for a fee of 1% or less, depending
on the size of their portfolios. In addition to reviewing
shareholders' circumstances, goals, and objectives periodically
and updating portfolio recommendations to reflect any changes, the
shareholders who participate in these programs are assigned a
dedicated Counselor [SERVICE MARK] representative. Other
distinctive services include specially designed account statements
with portfolio performance and transaction data, newsletters, and
regular investment, economic, and market updates. A $50,000
minimum investment is required to participate in either program.
Please refer to the description of the Adviser,
administrative agreement, management agreement, fees, expense
limitation, and transfer agency services under Fee Table and
Management of the Fund in the Prospectus, which is incorporated
herein by reference. The advisory agreement relating to the Fund
was replaced on July 1, 1996 with an administrative agreement and
a management agreement. The Adviser received payments in advisory
fees from the Fund of $343,107 for the period from the Fund's
inception on March 1, 1994 through September 30, 1994, and
$736,882 for the fiscal year ended September 30, 1995.
The Adviser provides office space and executive and other
personnel to the Fund and bears any sales or promotional expenses.
The Fund pays all expenses other than those paid by the Adviser,
including but not limited to printing and postage charges and
securities registration and custodian fees and expenses incidental
to its organization.
The administrative agreement provides that the Adviser shall
reimburse the Fund to the extent that total annual expenses of the
Fund (including fees paid to the Adviser, but excluding taxes,
interest, brokers' commissions and other normal charges incident
to the purchase and sale of portfolio securities and expenses of
litigation to the extent permitted under applicable state law)
exceed the applicable limits prescribed by any state in which
shares of the Fund are being offered for sale to the public;
provided, however, that the Adviser shall not be required to
reimburse the Fund an amount in excess of the management fee from
the Fund for such year. The Trust believes that currently the
most restrictive state limit on mutual fund expenses is that of
California, which limit currently is 2 1/2% of the first $30
million of average net assets, 2% of the next $70 million, and 1
1/2% thereafter. In addition, in the interest of further limiting
expenses of the Fund, the Adviser may voluntarily waive its
management fee and/or absorb certain expenses for the Fund, as
described under Fee Table in the Prospectus. Any such
reimbursement will enhance the yield of the Fund.
The management agreement also provides that neither the
Adviser nor any of its directors, officers, stockholders (or
partners of stockholders), agents, or employees shall have any
liability to the Trust or any shareholder of the Trust for any
error of judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by
the Adviser of its duties under the agreement, except for
liability resulting from willful misfeasance, bad faith or gross
negligence on their part in the performance of its duties or from
reckless disregard by it of its obligations and duties under the
agreement.
<PAGE> 30
Any expenses that are attributable solely to the
organization, operation, or business of the Fund shall be paid
solely out of the Fund's assets. Any expenses incurred by the
Trust that are not solely attributable to a particular series are
apportioned in such manner as the Adviser determines is fair and
appropriate, unless otherwise specified by the Board of Trustees.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Trust, the Adviser
receives a fee for performing certain bookkeeping and accounting
services for the Fund. For these services, the Adviser receives
an annual fee of $25,000 per Fund plus .0025 of 1% of average net
assets over $50 million. During the fiscal year ended September
30, 1995, the Adviser received aggregate fees of $192,479 from the
Trust for services performed under this Agreement.
DISTRIBUTOR
Shares of the Fund are distributed by Liberty Securities
Corporation ("LSC") under a Distribution Agreement as described
under Management of the Fund in the Prospectus, which is
incorporated herein by reference. The Distribution Agreement
continues in effect from year to year, provided such continuance
is approved annually (i) by a majority of the trustees or by a
majority of the outstanding voting securities of the Trust, and
(ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The Trust has
agreed to pay all expenses in connection with registration of its
shares with the Securities and Exchange Commission and auditing
and filing fees in connection with registration of its shares
under the various state blue sky laws and assumes the cost of
preparation of prospectuses and other expenses.
As agent, LSC offers shares of the Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. In addition, no sales commission or "12b-1" payment is
paid by the Fund. LSC offers the Fund's shares only on a best-
efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management of the Fund in the Prospectus. For
performing these services, SSI receives from the Fund a fee based
on an annual rate of .22 of 1% of average net assets. Prior to
May 1, 1995, SSI received the following payments from the Fund:
(1) a fee of $4.00 for each new account opened; (2) monthly
payments of $1.063 per open shareholder account; (3) payments of
$0.367 per closed shareholder account for each month through June
of the calendar year following the year in which the account is
closed; (4) $0.3025
<PAGE> 31
per shareholder account for each dividend paid; and (5) $1.415 for
each shareholder-initiated transaction. The Trust believes the
charges by SSI to the Fund are comparable to those of other
companies performing similar services. (See Investment Advisory
Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Trust. It is responsible for holding all securities and cash
of the Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Fund, and performing other administrative duties,
all as directed by authorized persons. The custodian does not
exercise any supervisory function in such matters as purchase and
sale of portfolio securities, payment of dividends, or payment of
expenses of the Fund.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
The Board of Trustees reviews, at least annually, whether it
is in the best interest of the Fund and its shareholders to
maintain Fund assets in each of the countries in which the Fund
invests with particular foreign sub-custodians in such countries,
pursuant to contracts between such respective foreign sub-
custodians and the Bank. The review includes an assessment of the
risks of holding Fund assets in any such country (including risks
of expropriation or imposition of exchange controls), the
operational capability and reliability of each such foreign sub-
custodian, and the impact of local laws on each such custody
arrangement. The Board of Trustees is aided in its review by the
Bank, which has assembled the network of foreign sub-custodians
utilized by the Fund, as well as by the Adviser and counsel.
However, with respect to foreign sub-custodians, there can be no
assurance that the Fund, and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians, or
application of foreign law to the Fund's foreign sub-custodial
arrangements. Accordingly, an investor should recognize that the
non-investment risks involved in holding assets abroad are greater
than those associated with investing in the United States.
The Fund may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
<PAGE> 32
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur
Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603. The
accountants audit and report on the Fund's annual financial
statements, review certain regulatory reports and the Fund's
federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to do
so by the Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
the Fund's portfolio securities and options and futures contracts.
The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price
and execution. The best net price, giving effect to brokerage
commissions, if any, and other transaction costs, normally is an
important factor in this decision, but a number of other
judgmental factors may also enter into the decision. These
include: the Adviser's knowledge of negotiated commission rates
currently available and other current transaction costs; the
nature of the security being traded; the size of the transaction;
the desired timing of the trade; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others which are
considered; the Adviser's knowledge of the financial stability of
the broker or dealer selected and such other brokers or dealers;
and the Adviser's knowledge of actual or apparent operational
problems of any broker or dealer. Recognizing the value of these
factors, the Fund may pay a brokerage commission in excess of that
which another broker or dealer may have charged for effecting the
same transaction. Evaluations of the reasonableness of brokerage
commissions, based on the foregoing factors, are made on an
ongoing basis by the Adviser's staff while effecting portfolio
transactions. The general level of brokerage commissions paid is
reviewed by the Adviser, and reports are made annually to the
Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to be
capable of providing the best combination of price and execution
with respect to a particular portfolio transaction for the Fund,
the Adviser often selects a broker or dealer that has furnished it
with research products or services such as research reports,
subscriptions to financial publications and research compilations,
compilations of securities prices, earnings, dividends, and
similar data, and computer data bases, quotation equipment and
services, research-oriented computer software and services, and
services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding
with any of the brokers or dealers; however, the Adviser uses an
internal allocation procedure to identify those brokers or dealers
who provide it with research products or services and the amount
of research products or services they provide, and endeavors to
direct sufficient commissions generated by its clients' accounts
in the aggregate, including the Fund, to such brokers or dealers
to ensure the continued receipt of research products or services
the Adviser feels are useful. In certain instances, the Adviser
may receive from brokers and dealers products or services that
<PAGE> 33
are used both as investment research and for administrative,
marketing, or other non-research purposes. In such instances, the
Adviser will make a good faith effort to determine the relative
proportions of such products or services which may be considered
as investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by the
Adviser (without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions by clients
(including the Fund), while the portions of the costs attributable
to non-research usage of such products or services is paid by the
Adviser in cash. No person acting on behalf of the Fund is
authorized, in recognition of the value of research products or
services, to pay a commission in excess of that which another
broker or dealer might have charged for effecting the same
transaction. Research products or services furnished by brokers
and dealers may be used in servicing any or all of the clients of
the Adviser and not all such research products or services are
used in connection with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis, the
Adviser may also consider the part, if any, played by the broker
or dealer in bringing the security involved to the Adviser's
attention, including investment research related to the security
and provided to the Fund.
The table below shows information on brokerage commissions
paid by the Fund:
Total amount of brokerage commissions paid
during fiscal year ended 9/30/95 $280,432
Amount of commissions paid to brokers or dealers
who supplied research services to the Adviser 225,164
Total dollar amount involved in such transactions 62,481,766
Amount of commissions paid to brokers or dealers
that were allocated to such brokers or dealers by
the Fund's portfolio manager because of research
services provided to the Fund N/A
Total dollar amount involved in such transactions N/A
Total amount of brokerage commissions paid during
period ended 9/30/94 $ 145,832
The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian as
a soliciting dealer in connection with any tender offer for Fund
portfolio securities. The custodian will credit any such fees
received against its custodial fees. In addition, the Board of
Trustees has reviewed the legal developments pertaining to and the
practicability of attempting to recapture underwriting discounts
or selling concessions when portfolio securities are purchased in
underwritten offerings. The Board of Trustees has been advised by
counsel that recapture in foreign securities underwritings is
permitted and has directed the Adviser to attempt to recapture to
the extent consistent with best price and execution.
<PAGE> 34
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund intends to comply with the special provisions of the
Internal Revenue Code that relieve it of federal income tax to the
extent of its net investment income and capital gains currently
distributed to shareholders.
Because dividend and capital gain distributions reduce net
asset value, a shareholder who purchases shares shortly before a
record date will, in effect, receive a return of a portion of his
investment in such distribution. The distribution would
nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income
tax purposes the shareholder's original cost would continue as his
tax basis.
The Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
To the extent the Fund invests in foreign securities, it may
be subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of the Fund's total
assets at the close of any fiscal year consist of stock or
securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders
of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even
though not actually received, (ii) treat such respective pro rata
shares as foreign income taxes paid by them, and (iii) deduct such
pro rata shares in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to
applicable limitations, against their United States income taxes.
Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata
portion of foreign taxes paid by the Fund, although such
shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit may
be required to treat a portion of dividends received from the Fund
as separate category income for purposes of computing the
limitations on the foreign tax credit available to such
shareholders. Tax-exempt shareholders will not ordinarily benefit
from this election relating to foreign taxes. Each year, the Fund
will notify shareholders of the amount of (i) each shareholder's
pro rata share of foreign income taxes paid by the Fund and (ii)
the portion of Fund dividends which represents income from each
foreign country, if the Fund qualifies to pass along such credit.
PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may purchase
the securities of certain foreign investment funds or trusts
called passive foreign investment companies ("PFICs"). In
addition to bearing their proportionate share of the Fund's
expenses (management fees and operating expenses), shareholders
will also indirectly bear similar expenses of PFICs. Capital gains
on the sale of PFIC holdings will be deemed to be ordinary income
regardless of how long the Fund holds its investment.
<PAGE> 35
In addition, the Fund may be subject to corporate income tax and
an interest charge on certain dividends and capital gains earned
from PFICs, regardless of whether such income and gains are
distributed to shareholders.
In accordance with tax regulations, the Fund intends to treat
PFICs as sold on the last day of the Fund's fiscal year and
recognize any gains for tax purposes at that time; losses will not
be recognized. Such gains will be considered ordinary income
which the Fund will be required to distribute even though it has
not sold the security and received cash to pay such distributions.
INVESTMENT PERFORMANCE
The Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of
the period and subtracting one. For a given period, an "Average
Annual Total Return" may be computed by finding the average annual
compounded rate that would equate a hypothetical initial amount
invested of $1,000 to the ending redeemable value.
Average Annual Total Return is computed as follows:
n
ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the end
of the period (or fractional portion thereof).
For example, for a $1,000 investment in the Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at September 30, 1995 were:
TOTAL TOTAL RETURN AVERAGE ANNUAL
RETURN RETURN PERCENTAGE TOTAL RETURN
------- ----------------- -------------
1 year $ 987 (1.28%) (1.28%)
*Life of Fund 1,048 4.75 2.98
________________________
*Life of Fund is from its date of public offering,
3/1/94.
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of future
results. The performance of the Fund is a result of conditions in
the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful
in reviewing the Fund's performance and in providing some basis
for comparison with other investment alternatives, it should not
be used for comparison with other investments using different
reinvestment assumptions or time periods.
<PAGE> 36
In advertising and sales literature, the Fund may compare its
performance with that of other mutual funds, indexes or averages
of other mutual funds, indexes of related financial assets or
data, and other competing investment and deposit products
available from or through other financial institutions. The
composition of these indexes or averages differs from that of the
Fund. Comparison of the Fund to an alternative investment should
be made with consideration of differences in features and expected
performance.
All of the indexes and averages noted below will be obtained
from the indicated sources or reporting services, which the Fund
believes to be generally accurate. The Fund may also note its
mention or recognition in newspapers, magazines, or other media
from time to time. However, the Fund assumes no responsibility
for the accuracy of such data. Newspapers and magazines which
might mention the Fund include, but are not limited to, the
following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
The Fund may compare its performance to the Consumer Price
Index (All Urban), a widely recognized measure of inflation.
<PAGE> 37
The Fund's performance may be compared to the following
indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite
Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite
Index
Standard & Poor's 400 Industrials NASDAQ Composite
Wilshire 5000 NASDAQ Industrials
(These indexes are widely (These indexes generally reflect the
recognized indicators of general performance of stocks traded in the
U.S. stock market results.) indicated markets.)
EAFE Index
Financial Times Actuaries World Index (Ex-U.S.)
Morgan Stanley Capital International World Index
(These indexes are widely recognized indicators of the
international markets)
In addition, the Fund may compare performance to the indices
indicated below:
Lipper International & Global Funds Average
Lipper General Equity Funds Average
Lipper Equity Funds Average
Lipper International Fund Index
(The Lipper averages are unweighted averages of total return
performance as classified, calculated, and published by
Lipper.)
ICD International Equity Funds Average
ICD All Equity Funds Average
ICD General Equity Average*
ICD Global Equity Funds Average
ICD International Equity and Global Equity Funds Average
ICD Foreign Securities Index
Morningstar International Stock Average
Morningstar U.S. Diversified Average
Morningstar Equity Fund Average
Morningstar Hybrid Fund Average
Morningstar All Equity Funds Average
Morningstar General Equity Average**
*Includes ICD Aggressive Growth, Growth & Income, Long-Term
Growth, and Total Return Averages.
**Includes Morningstar Aggressive Growth, Growth, Balanced,
Equity Income, and Growth & Income Averages.
The ICD Indexes reflect the unweighted average total return
of the largest twenty funds within their respective category as
calculated and published by ICD.
The Lipper International Fund index reflects the net asset
value weighted return of the ten largest international funds.
The Lipper, ICD, and Morningstar averages are unweighted
averages of total return performance of mutual funds as
classified, calculated, and published by these
<PAGE> 38
independent services that monitor the performance of mutual funds.
The Fund may also use comparative performance as computed in a
ranking by Lipper or category averages and rankings provided by
another independent service. Should Lipper or another service
reclassify the Fund to a different category or develop (and place
the Fund into) a new category, the Fund may compare its
performance or ranking with those of other funds in the newly
assigned category, as published by the service.
The Fund may also cite its rating, recognition, or other
mention by Morningstar or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is
computed by subtracting the Fund's risk score (which is a function
of the Fund's monthly returns less the 3-month T-bill return) from
the Fund's load-adjusted total return score. This numerical score
is then translated into rating categories, with the top 10%
labeled five star, the next 22.5% labeled four star, the next 35%
labeled three star, the next 22.5% labeled two star, and the
bottom 10% one star. A high rating reflects either above-average
returns or below-average risk, or both.
Of course, past performance is not indicative of future
results.
________________
To illustrate the historical returns on various types of
financial assets, the Fund may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment
firm. Ibbotson constructs (or obtains) very long-term (since
1926) total return data (including, for example, total return
indexes, total return percentages, average annual total returns
and standard deviations of such returns) for the following asset
types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
The Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such
example is reflected in the chart below, which shows the effect
of tax deferral on a hypothetical investment. This chart assumes
that an investor invested $2,000 a year on January 1, for any
specified period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 6%, 8% or 10%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
<PAGE> 39
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average cost
per share.
Like any investment strategy, dollar cost averaging can't
guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
From time to time, the Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[SERVICE MARK] and the Stein Roe Counselor Preferred [SERVICE
MARK] programs and asset allocation and other investment
strategies.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion
as to the credit quality of the security being rated. However,
the ratings are general and are not absolute standards of quality
or guarantees as to the creditworthiness of an issuer.
Consequently, the Adviser believes that the quality of debt
securities in which the Fund invests should be continuously
reviewed and that individual analysts give different weightings to
the various factors involved in credit analysis. A rating is not
a recommendation to purchase, sell or hold a security because it
does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information furnished
by the issuer or obtained by the rating services from other
sources which they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability
of such information, or for other reasons.
<PAGE> 40
The following is a description of the characteristics of
ratings of corporate debt securities used by Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
RATINGS BY MOODY'S
AAA. Bonds rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or an exceptionally stable margin and principal is secure.
Although the various protective elements are likely to change,
such changes as can be visualized are more unlikely to impair the
fundamentally strong position of such bonds.
AA. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA. Bonds rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
CA. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
<PAGE> 41
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for debt in higher rated categories.
BB, B, CCC, CC, AND C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no interest
is being paid.
D. Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears. The D rating is also used
upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same basis
as domestic debt measuring the creditworthiness of the issuer;
ratings of foreign debt do not take into account currency exchange
and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility
or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or
interest return is indexed to equities, commodities, or
currencies; certain swaps and
<PAGE> 42
options; and interest only and principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication
that an obligation will exhibit no volatility or variability in
total return.
_________________
<PAGE> 1
Statement of Additional Information Dated July 1, 1996
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
STEIN ROE YOUNG INVESTOR FUND
Stein Roe Young Investor Fund is a series of the Stein Roe
Investment Trust (the "Trust"). Each series of the Trust
represents shares of beneficial interest in a separate portfolio
of securities and other assets, with its own objectives and
policies. This Statement of Additional Information is not a
prospectus, but provides additional information that should be
read in conjunction with the Fund's prospectus dated July 1, 1996,
and any supplements thereto ("Prospectus"). The Prospectus may be
obtained at no charge by telephoning 800-403-KIDS (800-403-5437).
TABLE OF CONTENTS
Page
General Information and History..........................2
Investment Policies......................................3
Portfolio Investments and Strategies.....................3
Investment Restrictions.................................17
Additional Investment Considerations....................20
Purchases and Redemptions...............................21
Management..............................................22
Financial Statements....................................25
Principal Shareholders..................................26
Investment Advisory Services............................26
Distributor.............................................29
Transfer Agent..........................................29
Custodian...............................................29
Independent Public Accountants..........................30
Portfolio Transactions..................................30
Additional Income Tax Considerations....................32
Investment Performance..................................33
Appendix--Ratings.......................................37
<PAGE> 2
GENERAL INFORMATION AND HISTORY
As used herein, the "Fund" refers to the series of the Stein
Roe Investment Trust (the "Trust") designated Stein Roe Young
Investor Fund. On February 1, 1996, the name of the Trust was
changed from SteinRoe Investment Trust to Stein Roe Investment
Trust and the name of the Fund was changed from SteinRoe Young
Investor Fund to Stein Roe Young Investor Fund.
Stein Roe & Farnham Incorporated ("Stein Roe") is investment
adviser and provides administrative services to the Fund.
Currently, eight series of the Trust are authorized and
outstanding. Each share of a series is entitled to participate
pro rata in any dividends and other distributions declared by the
Board on shares of that series, and all shares of a series have
equal rights in the event of liquidation of that series.
Each whole share (or fractional share) outstanding on the
record date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the close
of business on the record date (for example, a share having a net
asset value of $10.50 would be entitled to 10.5 votes). As a
business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for
purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory
contract. If requested to do so by the holders of at least 10% of
the Trust's outstanding shares, the Trust will call a special
meeting for the purpose of voting upon the question of removal of
a trustee or trustees and will assist in the communications with
other shareholders as if the Trust were subject to Section 16(c)
of the Investment Company Act of 1940. All shares of all series
of the Trust are voted together in the election of trustees. On
any other matter submitted to a vote of shareholders, shares are
voted in the aggregate and not by individual series, except that
shares are voted by individual series when required by the
Investment Company Act of 1940 or other applicable law, or when
the Board of Trustees determines that the matter affects only the
interests of one or more series, in which case shareholders of the
unaffected series are not entitled to vote on such matters.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE
The Fund may in the future seek to achieve its objective by
pooling its assets with assets of other mutual funds managed by
Stein Roe for investment in another mutual fund having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. Stein Roe is expected to manage any such mutual
fund in which the Fund would invest. Such investment would be
subject to determination by the Trustees that it was in the best
interests of the Fund and its shareholders, and shareholders would
receive advance notice of any such change.
<PAGE> 3
INVESTMENT POLICIES
In pursuing its objective, the Fund will invest as described
below and may employ the investment techniques described in the
Prospectus and under Portfolio Investments and Strategies in this
Statement of Additional Information. The Fund's investment
objective is a non-fundamental policy and may be changed by the
Board of Trustees without the approval of a "majority of the
outstanding voting securities" /1/ of the Fund.
The Fund's investment objective is long-term capital
appreciation. It seeks to achieve its objective by investing
primarily in common stocks and other equity-type securities that,
in the opinion of Stein Roe, have long-term appreciation
potential.
Under normal circumstances, at least 65% of the Fund's total
assets will be invested in securities of companies that, in the
opinion of Stein Roe, directly or through one or more
subsidiaries, affect the lives of children or teenagers. Such
companies may include companies that produce products or services
that children or teenagers use, are aware of, or could potentially
have an interest in.
Although the Fund invests primarily in common stocks and
other equity-type securities (such as preferred stocks, securities
convertible into or exchangeable for common stocks, and warrants
or rights to purchase common stocks), it may invest up to 35% of
its total assets in debt securities. The Fund may also employ
investment techniques described elsewhere in this Statement of
Additional Information. (See Portfolio Investments and
Strategies.)
In addition to the Fund's investment objective and policies,
the Fund also has an educational objective. The Fund will seek to
educate its shareholders by providing educational materials
regarding investing as well as materials on the Fund and its
portfolio holdings.
PORTFOLIO INVESTMENTS AND STRATEGIES
DEFENSIVE INVESTMENTS
When Stein Roe considers a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
DERIVATIVES
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-
- -----------------
/1/ "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Fund.
- -----------------
<PAGE> 4
exchange-traded options, futures contracts, futures options,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate, or a
currency.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because it is more
efficient or less costly than direct investment that cannot be
readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on Stein Roe's
ability to correctly predict changes in the levels and directions
of movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives.
The Fund currently does not intend to invest, nor has it
during its past fiscal year invested, more than 5% of its net
assets in any type of Derivative, except for options, futures
contracts, and futures options. (See Options and Futures in this
Statement of Additional Information.)
Some mortgage-backed debt securities are of the "modified
pass-through type," which means the interest and principal
payments on mortgages in the pool are "passed through" to
investors. During periods of declining interest rates, there is
increased likelihood that mortgages will be prepaid, with a
resulting loss of the full-term benefit of any premium paid by the
Fund on purchase of such securities; in addition, the proceeds of
prepayment would likely be invested at lower interest rates.
Mortgage-backed securities provide either a pro rata interest
in underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") that represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, prepayment risks, and yield
characteristics. Mortgage-backed securities involve the risk of
prepayment on the underlying mortgages at a faster or slower rate
than the established schedule. Prepayments generally increase
with falling interest rates and decrease with rising rates but
they also are influenced by economic, social, and market factors.
If mortgages are pre-paid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of
any premium paid by the Fund on purchase of the CMO, and the
proceeds of prepayment would likely be invested at lower interest
rates.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to
<PAGE> 5
support payments on the underlying loans that finance payments on
the securities themselves.
Floating rate instruments provide for periodic adjustments in
coupon interest rates that are automatically reset based on
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with an
adjusted duration of 2 would increase by approximately 2%.
FOREIGN SECURITIES
The Fund may invest up to 25% of its total assets in foreign
securities, which may entail a greater degree of risk (including
risks relating to exchange rate fluctuations, tax provisions, or
expropriation of assets) than does investment in securities of
domestic issuers. For this purpose, foreign securities do not
include American Depositary Receipts (ADRs) or securities
guaranteed by a United States person. ADRs are receipts typically
issued by an American bank or trust company evidencing ownership
of the underlying securities. The Fund may invest in sponsored or
unsponsored ADRs. In the case of an unsponsored ADR, the Fund is
likely to bear its proportionate share of the expenses of the
depository and it may have greater difficulty in receiving
shareholder communications than it would have with a sponsored
ADR. As of September 30, 1995, the Fund held 1.75% of its net
assets in foreign companies (none in foreign securities and 1.75%
in ADRs).
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, the Fund's
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar value
of the yen-denominated stock will fall. (See discussion of
transaction hedging and portfolio hedging under Currency Exchange
Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions in which are generally denominated in foreign
currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and
<PAGE> 6
issuers of securities; lack of uniform accounting, auditing, and
financial reporting standards; lack of uniform settlement periods
and trading practices; less liquidity and frequently greater price
volatility in foreign markets than in the United States; possible
imposition of foreign taxes; possible investment in securities of
companies in developing as well as developed countries; and
sometimes less advantageous legal, operational, and financial
protections applicable to foreign sub-custodial arrangements.
Although the Fund will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
The Fund's foreign currency exchange transactions are limited
to transaction and portfolio hedging involving either specific
transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward contracts with respect to specific
receivables or payables of the Fund arising in connection with the
purchase and sale of its portfolio securities. Portfolio hedging
is the use of forward contracts with respect to portfolio security
positions denominated or quoted in a particular foreign currency.
Portfolio hedging allows the Fund to limit or reduce its exposure
in a foreign currency by entering into a forward contract to sell
such foreign currency (or another foreign currency that acts as a
proxy for that currency) at a future date for a price payable in
U.S. dollars so that the value of the foreign-denominated
portfolio securities can be approximately matched by a foreign-
denominated liability. The Fund may not engage in portfolio
hedging with respect to the currency of a particular country to an
extent greater than the aggregate market value (at the time of
making such sale) of the securities held in its portfolio
denominated or quoted in that particular currency, except that the
Fund may hedge all or part of its foreign currency exposure
through the use of a basket of currencies or a proxy currency
where such currencies or currency act as an effective proxy for
other currencies. In such a case, the Fund may enter into a
forward contract where the amount of the foreign currency to be
sold exceeds the value of the securities denominated in such
currency. The use of this basket hedging technique may be more
efficient and economical than entering into separate forward
contracts for each currency held in the Fund. The Fund may not
engage in "speculative" currency exchange transactions.
<PAGE> 7
At the maturity of a forward contract to deliver a particular
currency, the Fund may either sell the portfolio security related
to such contract and make delivery of the currency, or it may
retain the security and either acquire the currency on the spot
market or terminate its contractual obligation to deliver the
currency by purchasing an offsetting contract with the same
currency trader obligating it to purchase on the same maturity
date the same amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for the Fund
to purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell on the
spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of
currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between
the Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price
of the currency it has agreed to sell. A default on the contract
would deprive the Fund of unrealized profits or force the Fund to
cover its commitments for purchase or sale of currency, if any, at
the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to the Fund of engaging in currency
exchange transactions varies with such factors as the currency
involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually
conducted on a principal basis, no fees or commissions are
involved.
LENDING OF FUND SECURITIES
Subject to restriction (5) under Investment Restrictions in
this Statement of Additional Information, the Fund may lend its
portfolio securities to broker-dealers and banks. Any such loan
must be continuously secured by collateral in cash or cash
equivalents maintained on a current basis in an amount at least
equal to the market value of the securities loaned by the Fund.
Cash collateral for securities loaned will be
<PAGE> 8
invested in liquid high-grade debt securities. The Fund would
continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and would also
receive an additional return that may be in the form of a fixed
fee or a percentage of the collateral. The Fund would have the
right to call the loan and obtain the securities loaned at any
time on notice of not more than five business days. The Fund
would not have the right to vote the securities during the
existence of the loan but would call the loan to permit voting of
the securities if, in Stein Roe's judgment, a material event
requiring a shareholder vote would otherwise occur before the loan
was repaid. In the event of bankruptcy or other default of the
borrower, the Fund could experience both delays in liquidating the
loan collateral or recovering the loaned securities and losses,
including (a) possible decline in the value of the collateral or
in the value of the securities loaned during the period while the
Fund seeks to enforce its rights thereto, (b) possible subnormal
levels of income and lack of access to income during this period,
and (c) expenses of enforcing its rights. The Fund did not lend
any of its securities during the fiscal year ended September 30,
1995.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS
The Fund may purchase securities on a when-issued or delayed-
delivery basis. Although the payment and interest terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed. The Fund makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities
before settlement date if Stein Roe deems it advisable for
investment reasons. During the fiscal year ended September 30,
1995, the Fund did not make any commitments to purchase when-
issued securities in excess of 5% of its assets.
The Fund may enter into reverse repurchase agreements with
banks and securities dealers. A reverse repurchase agreement is a
repurchase agreement in which the Fund is the seller of, rather
than the investor in, securities and agrees to repurchase them at
an agreed-upon time and price. Use of a reverse repurchase
agreement may be preferable to a regular sale and later repurchase
of securities because it avoids certain market risks and
transaction costs. The Fund did not enter into any reverse
repurchase agreements during the fiscal year ended September 30,
1995.
At the time the Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S. Government
securities or other "high-grade" debt obligations) of the Fund
having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the
Fund and held by the custodian throughout the period of the
obligation. The use of these investment strategies, as well as
borrowing under a line of credit as described below, may increase
net asset value fluctuation.
SHORT SALES
The Fund may make short sales "against the box." In a short
sale, the Fund sells a borrowed security and is required to return
the identical security to the lender.
<PAGE> 9
A short sale "against the box" involves the sale of a security
with respect to which the Fund already owns an equivalent security
in kind and amount. A short sale "against the box" enables the
Fund to obtain the current market price of a security which it
desires to sell but is unavailable for settlement.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately
placed but that are eligible for purchase and sale under Rule 144A
under the 1933 Act. That Rule permits certain qualified
institutional buyers, such as the Fund, to trade in privately
placed securities that have not been registered for sale under the
1933 Act. Stein Roe, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund's restriction of
investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is
liquid or not is a question of fact. In making this
determination, Stein Roe will consider the trading markets for the
specific security, taking into account the unregistered nature of
a Rule 144A security. In addition, Stein Roe could consider the
(1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market,
and (4) nature of the security and of marketplace trades (e.g.,
the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored and, if as a result of
changed conditions, it is determined that a Rule 144A security is
no longer liquid, the Fund's holdings of illiquid securities would
be reviewed to determine what, if any, steps are required to
assure that the Fund does not invest more than 5% of its assets in
illiquid securities. Investing in Rule 144A securities could have
the effect of increasing the amount of the Fund's assets invested
in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. The Fund does not expect
to invest as much as 5% of its total assets in Rule 144A
securities that have not been deemed liquid by Stein Roe. (See
restriction (m) under Investment Restrictions.)
LINE OF CREDIT
Subject to restriction (6) under Investment Restrictions in
this Statement of Additional Information, the Fund may establish
and maintain a line of credit with a major bank in order to permit
borrowing on a temporary basis to meet share redemption requests
in circumstances in which temporary borrowing may be preferable to
liquidation of portfolio securities.
PORTFOLIO TURNOVER
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
that portfolio securities must be held. Fund turnover can occur
for a number of reasons such as general conditions in the
securities markets, more favorable investment opportunities in
other securities, or other factors relating to the desirability of
holding or changing a portfolio investment. Because of the Fund's
flexibility of investment and emphasis on growth of capital, it
may have greater portfolio turnover than that of mutual funds that
have primary objectives
<PAGE> 10
of income or maintenance of a balanced investment position. The
future turnover rate may vary greatly from year to year. A high
rate of portfolio turnover in the Fund, if it should occur, would
result in increased transaction expense, which must be borne by
the Fund. High portfolio turnover may also result in the
realization of capital gains or losses and, to the extent net
short-term capital gains are realized, any distributions resulting
from such gains will be considered ordinary income for federal
income tax purposes. (See Risks and Investment Considerations and
Distributions and Income Taxes in the Prospectus, and Additional
Income Tax Considerations in this Statement of Additional
Information.)
OPTIONS ON SECURITIES AND INDEXES
Consistent with its objective, the Fund may purchase and
write both call options and put options on securities and on
indexes, and enter into interest rate and index futures contracts,
and may purchase or sell options on such futures contracts
("futures options") in order to achieve its desired investment
objective, to provide additional revenue, or to hedge against
changes in security prices or interest rates. The Fund may
purchase and write both call options and put options on foreign
currencies and enter into foreign currency futures contracts and
futures options in order to provide additional revenue or to hedge
against changes in currency fluctuations. The Fund may also use
other types of options, futures contracts, and futures options
currently traded or subsequently developed and traded, provided
the Board of Trustees determines that their use is consistent with
the Fund's investment objective.
The Fund may purchase and sell put options and call options
on securities, indexes or foreign currencies in standardized
contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ. The Fund may
purchase agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium, the
right to buy from (call) or sell to (put) the seller (writer) of
the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the
term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver
the underlying security or foreign currency upon payment of the
exercise price or to pay the exercise price upon delivery of the
underlying security or foreign currency. Upon exercise, the
writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An
index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators.)
The Fund will write call options and put options only if they
are "covered." For example, in the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
<PAGE> 11
acquire that security without additional cash consideration (or,
if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its
custodian) upon conversion or exchange of other securities held in
its portfolio.
If an option written by the Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by the Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase
the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of
the option, the volatility of the underlying security or index,
and the time remaining until the expiration date.
A put or call option purchased by the Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by the Fund is recorded as
a deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid
and asked prices.
Risks Associated with Options. There are several risks
associated with transactions in options. For example, there are
significant differences between the securities markets, the
currency markets, and the options markets that could result in an
imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or
unexpected events.
There can be no assurance that a liquid market will exist
when the Fund seeks to close out an option position. If the Fund
were unable to close out an option that it had purchased on a
security, it would have to exercise the option in order to realize
any profit or the option would expire and become worthless. If
the Fund were unable to close out a covered call option that it
had written on a security, it would not be able to sell the
underlying security until the option expired. As the writer of a
covered call option on a security, the Fund foregoes, during the
option's life, the opportunity to
<PAGE> 12
profit from increases in the market value of the security covering
the call option above the sum of the premium and the exercise
price of the call.
If trading were suspended in an option purchased or written
by the Fund, the Fund would not be able to close out the option.
If restrictions on exercise were imposed, the Fund might be unable
to exercise an option it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Fund may use interest rate futures contracts, index
futures contracts, and foreign currency futures contracts. An
interest rate, index or foreign currency futures contract provides
for the future sale by one party and purchase by another party of
a specified quantity of a financial instrument or the cash value
of an index /2/ at a specified price and time. A public market
exists in futures contracts covering a number of indexes
(including, but not limited to: the Standard & Poor's 500 Index;
the Value Line Composite Index; and the New York Stock Exchange
Composite Index) as well as financial instruments (including, but
not limited to: U.S. Treasury bonds; U.S. Treasury notes;
Eurodollar certificates of deposit; and foreign currencies).
Other index and financial instrument futures contracts are
available and it is expected that additional futures contracts
will be developed and traded.
The Fund may purchase and write call and put futures options.
Futures options possess many of the same characteristics as
options on securities, indexes and foreign currencies (discussed
above). A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price
at any time during the period of the option. Upon exercise of a
call option, the holder acquires a long position in the futures
contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true. The Fund
might, for example, use futures contracts to hedge against or gain
exposure to fluctuations in the general level of stock prices,
anticipated changes in interest rates or currency fluctuations
that might adversely affect either the value of the Fund's
securities or the price of the securities that the Fund intends to
purchase. Although other techniques could be used to reduce or
increase the Fund's exposure to stock price, interest rate, and
currency fluctuations, the Fund may be able to achieve its
exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
The Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
- ------------------------
/2/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities no physical delivery of those securities is
made.
- ------------------------
<PAGE> 13
The success of any futures transaction depends on Stein Roe
correctly predicting changes in the level and direction of stock
prices, interest rates, currency exchange rates and other factors.
Should those predictions be incorrect, the Fund's return might
have been better had the transaction not been attempted; however,
in the absence of the ability to use futures contracts, Stein Roe
might have taken portfolio actions in anticipation of the same
market movements with similar investment results but, presumably,
at greater transaction costs.
When a purchase or sale of a futures contract is made by the
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is
set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit on the
futures contract, which is returned to the Fund upon termination
of the contract, assuming all contractual obligations have been
satisfied. The Fund expects to earn interest income on its
initial margin deposits. A futures contract held by the Fund is
valued daily at the official settlement price of the exchange on
which it is traded. Each day the Fund pays or receives cash,
called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking-to-
market." Variation margin paid or received by the Fund does not
represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would
owe the other if the futures contract had expired at the close of
the previous day. In computing daily net asset value, the Fund
will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by
it. Such margin deposits will vary depending on the nature of the
underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price is
less than the original sale price, the Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original
purchase price, the Fund realizes a capital gain, or if it is
less, the Fund realizes a capital loss. The transaction costs
must also be included in these calculations.
RISKS ASSOCIATED WITH FUTURES
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. In trying to increase or reduce market
exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and in
the portfolio exposure sought. In addition, there
<PAGE> 14
are significant differences between the securities and futures
markets that could result in an imperfect correlation between the
markets, causing a given transaction not to achieve its
objectives. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for
futures, futures options and the related securities, including
technical influences in futures and futures options trading and
differences between the securities market and the securities
underlying the standard contracts available for trading. For
example, in the case of index futures contracts, the composition
of the index, including the issuers and the weighting of each
issue, may differ from the composition of the Fund's portfolio,
and, in the case of interest rate futures contracts, the interest
rate levels, maturities, and creditworthiness of the issues
underlying the futures contract may differ from the financial
instruments held in the Fund's portfolio. A decision as to
whether, when and how to use futures contracts involves the
exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market
behavior or unexpected stock price or interest rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock
index futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will exist at
a time when the Fund seeks to close out a futures or futures
option position. The Fund would be exposed to possible loss on
the position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active
secondary market will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
the Fund may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with the
Fund's investment objective.
The Fund will not enter into a futures contract or purchase
an option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by the Fund plus premiums paid
by it for open futures option positions, less the amount by
<PAGE> 15
which any such positions are "in-the-money," /3/ would exceed 5%
of the Fund's total assets.
When purchasing a futures contract or writing a put option on
a futures contract, the Fund must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contract. When
writing a call option on a futures contract, the Fund similarly
will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is
in-the-money until the option expires or is closed out by the
Fund.
The Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Fund has written
call options on specific securities in its portfolio, the value of
those securities will be deducted from the current market value of
the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," the Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of the Fund, after taking into account unrealized profits
and unrealized losses on any such contracts it has entered into
[in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section 190.01(x)
of the Commission Regulations) may be excluded in computing such
5%].
As long as the Fund continues to sell its shares in certain
states, the Fund's options and futures transactions will also be
subject to certain non-fundamental investment restrictions set
forth under Investment Restrictions in this Statement of
Additional Information.
TAXATION OF OPTIONS AND FUTURES
If the Fund exercises a call or put option that it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by the Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
- -----------------------
/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- -----------------------
<PAGE> 16
If a call or put option written by the Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by the Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by the Fund was in-
the-money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If the Fund writes an equity call option /4/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities covering
the option, may be subject to deferral until the securities
covering the option have been sold.
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If the
Fund delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, the Fund generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of futures
contracts or writing of call options (or futures call options) or
buying put options (or futures put options) that are intended to
hedge against a change in the value of securities held by the
Fund: (1) will affect the holding period of the hedged securities;
and (2) may cause unrealized gain or loss on such securities to be
recognized upon entry into the hedge.
If the Fund were to enter into a short index future, short
index futures option or short index option position and the Fund's
portfolio were deemed to "mimic" the
- ------------------
/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500
index).
- ------------------
<PAGE> 17
performance of the index underlying such contract, the option or
futures contract position and the Fund's stock positions would be
deemed to be positions in a mixed straddle, subject to the above-
mentioned loss deferral rules.
In order for the Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities held
for less than three months must be limited to less than 30% of the
Fund's annual gross income. Any net gain realized from futures
(or futures options) contracts will be considered gain from the
sale of securities and therefore be qualifying income for purposes
of the 90% requirement. In order to avoid realizing excessive
gains on securities held less than three months, the Fund may be
required to defer the closing out of certain positions beyond the
time when it would otherwise be advantageous to do so.
The Fund distributes to shareholders annually any net capital
gains that have been recognized for federal income tax purposes
(including year-end mark-to-market gains) on options and futures
transactions. Such distributions are combined with distributions
of capital gains realized on other investments, and shareholders
are advised of the nature of the payments.
INVESTMENT RESTRICTIONS
The Fund operates under the following investment
restrictions. The Fund may not:
(1) with respect to 75% of its total assets, invest more than
5% of its total assets, taken at market value at the time of a
particular purchase, in the securities of a single issuer, except
for securities issued or guaranteed by the Government of the U.S.
or any of its agencies or instrumentalities or repurchase
agreements for such securities and that all or substantially all
of the assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund;
(2) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer,
except that all or substantially all of the assets of the Fund may
be invested in another registered investment company having the
same investment objective and substantially similar investment
policies as the Fund;
(3) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities Act of
1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale, except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
<PAGE> 18
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, or commodity contracts, except
that it may enter into (a) futures and options on futures and (b)
forward contracts for the purpose of facilitating payment for a
foreign security;
(5) make loans, although the Fund may (a) lend portfolio
securities and participate in an interfund lending program with
other Stein Roe Funds provided that no such loan may be made if,
as a result, the aggregate of such loans would exceed 33 1/3% of
the value of the Fund's total assets (taken at market value at the
time of such loans); (b) purchase money market instruments and
enter into repurchase agreements; and (c) acquire publicly-
distributed or privately-placed debt securities;
(6) borrow except that the Fund may (a) borrow for non-
leveraging, temporary or emergency purposes, (b) engage in reverse
repurchase agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of the Fund's total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law, and (c) enter into futures and options
transactions; the Fund may borrow from banks, other Stein Roe
Funds, and other persons to the extent permitted by applicable
law;
(7) invest in a security if more than 25% of its total assets
(taken at market value at the time of a particular purchase) would
be invested in the securities of issuers in any particular
industry, except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and that all or substantially all of
the assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund; or
(8) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
The above restrictions are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities," as defined above. The Fund is also subject to
the following non-fundamental restrictions and policies, which may
be changed by the Board of Trustees. None of the following
restrictions shall prevent the Fund from investing all or
substantially all of its assets in another investment company
having the same investment objective and substantially the same
investment policies as the Fund. The Fund may not:
(a) invest in any of the following: (i) interests in oil,
gas, or other mineral leases or exploration or development
programs (except readily marketable securities, including but not
limited to master limited partnership interests, that may
represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls, straddles,
spreads, or any combination thereof (except that it may enter into
transactions in options, futures, and options on futures); (iii)
shares of other open-end investment companies, except in
connection with a merger, consolidation, acquisition,
<PAGE> 19
or reorganization; and (iv) limited partnerships in real estate
unless they are readily marketable;
(b) invest in companies for the purpose of exercising control
or management;
(c) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of its total assets (valued at time of purchase) in
the case of any one other investment company and 10% of such
assets (valued at time of purchase) in the case of all other
investment companies in the aggregate; any such purchases are to
be made in the open market where no profit to a sponsor or dealer
results from the purchase, other than the customary broker's
commission, except for securities acquired as part of a merger,
consolidation or acquisition of assets;
(d) purchase or hold securities of an issuer if 5% of the
securities of such issuer are owned by those officers, trustees,
or directors of the Trust or of its investment adviser, who each
own beneficially more than 1/2 of 1% of the securities of that
issuer;
(e) mortgage, pledge, or hypothecate its assets, except as
may be necessary in connection with permitted borrowings or in
connection with options, futures, and options on futures;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American Stock
Exchange;
(g) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;
(h) invest more than 25% of its total assets (valued at time
of purchase) in securities of foreign issuers (other than
securities represented by American Depositary Receipts (ADRs) or
securities guaranteed by a U.S. person);
(i) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered through
the facilities of a recognized securities association or listed on
a recognized exchange or similar entity;
(j) purchase a put or call option if the aggregate premiums
paid for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
(k) purchase securities on margin (except for use of short-
term credits as are necessary for the clearance of transactions),
or sell securities short unless (i) the Fund owns or has the right
to obtain securities equivalent in kind and amount to those sold
short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which the Fund expects to
receive in a recapitalization, reorganization, or other exchange
for securities the Fund contemporaneously owns or has the
<PAGE> 20
right to obtain and provided that transactions in options,
futures, and options on futures are not treated as short sales;
(l) invest more than 5% of its total assets (taken at market
value at the time of a particular investment) in securities of
issuers (other than issuers of federal agency obligations or
securities issued or guaranteed by any foreign country or asset-
backed securities) that, together with any predecessors or
unconditional guarantors, have been in continuous operation for
less than three years ("unseasoned issuers");
(m) invest more than 5% of its total assets (taken at market
value at the time of a particular investment) in restricted
securities, other than securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933;
(n) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in restricted
securities and securities of unseasoned issuers;
(o) invest more than 5% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities, including repurchase agreements maturing in more than
seven days.
ADDITIONAL INVESTMENT CONSIDERATIONS
Stein Roe seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. It has worked
to build wealth for generations by being guided by three primary
objectives which it believes are the foundation of a successful
investment program. These objectives are preservation of capital,
limited volatility through managed risk, and consistent above-
average returns. Because every investor's needs are different,
Stein Roe mutual funds are designed to accommodate different
investment objectives, risk tolerance levels, and time horizons.
In selecting a mutual fund, investors should ask the following
questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize your
investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks which
will vary depending on investment objective and security type.
However, mutual funds seek to reduce risk through professional
investment management and portfolio diversification.
<PAGE> 21
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no guarantee
that they will be able to maintain a stable net asset value of
$1.00 per share, money market funds emphasize safety of principal
and liquidity, but tend to offer lower income potential than bond
funds. Bond funds tend to offer higher income potential than
money market funds but tend to have greater risk of principal and
yield volatility.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information is
incorporated herein by reference. The Prospectus discloses that
you may purchase (or redeem) shares through investment dealers,
banks, or other institutions. It is the responsibility of any
such institution to establish procedures insuring the prompt
transmission to the Trust of any such purchase order. The state
of Texas has asked that the Trust disclose in its Statement of
Additional Information, as a reminder to any such bank or
institution, that it must be registered as a securities dealer in
Texas.
The Fund's net asset value is determined on days on which the
New York Stock Exchange (the "NYSE") is open for trading. The
NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the judgment
of the Board of Trustees, net asset value of the Fund should be
determined on any such day, in which case the determination will
be made at 3:00 p.m., Chicago time.
The Trust intends to pay all redemptions in cash and is
obligated to redeem shares solely in cash up to the lesser of
$250,000 or one percent of the net assets of the Trust during any
90-day period for any one shareholder. However, redemptions in
excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in
kind, the redeeming shareholders might incur transaction costs in
selling the securities received in the redemptions.
Due to the relatively high cost of maintaining smaller
accounts, the Trust reserves the right to redeem shares in any
account for their then-current value (which will be promptly paid
to the investor) if at any time the shares in the account do not
have a value of at least $1,000. An investor will be notified
that the value of his account is less than that minimum and
allowed at least 30 days to bring the value of the account up to
at least $1,000 before the redemption is processed. The Agreement
and Declaration of Trust also authorizes the Trust to redeem
shares under certain other circumstances as may be specified by
the Board of Trustees.
<PAGE> 22
The Trust reserves the right to suspend or postpone
redemptions of shares of the Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the Securities
and Exchange Commission, or the NYSE is closed for other than
customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c)
an emergency, as determined by the Securities and Exchange
Commission, exists, making disposal of portfolio securities or
valuation of net assets of the Fund not reasonably practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers:
<TABLE>
<CAPTION>
Position(s) held
Name Age with the Trust Principal occupation(s) during past five years
- -------------------- -- ------------------------ -----------------------------------------------
<S> <C> <C> <C>
Gary A. Anetsberger 40 Senior Vice-President Controller of the Mutual Funds division of Stein Roe &
Farnham Incorporated (the "Adviser"); senior vice
president of the Adviser since April, 1996; vice
president of the Adviser, January, 1991 to April, 1996
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of the Adviser
(1) (2) and director of the Adviser since June, 1992; senior
vice president and director of marketing of Citibank
Illinois prior thereto
Jilaine Hummel Bauer 40 Executive Vice-President; General counsel and secretary of the Adviser since
Secretary November, 1995; senior vice president of the Adviser
since April, 1992; vice president of the Adviser prior
thereto
Bruno Bertocci 41 Vice-President Vice president of Colonial Management Associates, Inc.
since January, 1996; senior vice president of the
Adviser since May, 1995; global equity portfolio
manager with Rockefeller & Co. prior thereto
Kenneth L. Block (3) 76 Trustee Chairman emeritus of A. T. Kearney, Inc. (international
management consultants)
William W. Boyd (3) 69 Trustee Chairman and director of Sterling Plumbing Group, Inc.
(manufacturer of plumbing products) since 1992;
chairman, president, and chief executive officer of
Sterling Plumbing Group, Inc. prior thereto
David P. Brady 32 Vice-President Vice president of the Adviser since November, 1995;
portfolio manager for the Adviser since 1993; equity
investment analyst, State Farm Mutual Automobile
Insurance Company prior thereto
Thomas W. Butch 39 Vice-President Senior vice president of the Adviser since September,
1994; first vice president, corporate communications,
of Mellon Bank Corporation prior thereto
<PAGE> 23
N. Bruce Callow 50 Executive Vice-President President of the Investment Counsel division of the
Adviser since June, 1994; senior vice president of
trust and financial services for The Northern Trust
prior thereto
Daniel K. Cantor 36 Vice-President Senior vice president of the Adviser
Lindsay Cook (1) 44 Trustee Senior vice president of Liberty Financial Companies,
Inc. (the indirect parent of the Adviser)
E. Bruce Dunn 62 Vice-President Senior vice president of the Adviser
Erik P. Gustafson 32 Vice-President Senior portfolio manager of the Adviser; senior vice
president of the Adviser since April, 1996; vice
president of the Adviser from May, 1994 to April, 1996;
associate of the Adviser from April, 1992 to May, 1994;
associate attorney with Fowler White Burnett Hurley
Banick & Strickroot prior thereto
David P. Harris 32 Vice-President Vice president of Colonial Management Associates, Inc.
since January, 1996; vice president of the Adviser
since May, 1995; global equity portfolio manager with
Rockefeller & Co. prior thereto
Douglas A. Hacker 40 Trustee Senior vice president and chief financial officer,
United Airlines, since July, 1994; senior vice
president--Finance, United Airlines, February, 1993 to
July, 1994; vice president--corporate & fleet planning,
American Airlines, 1991 to February, 1993
Philip D. Hausken 38 Vice-President Vice president of the Adviser since November, 1995;
corporate counsel for the Adviser since July, 1994;
assistant regional director, midwest regional office of
the Securities and Exchange Commission prior thereto
Harvey B. Hirschhorn 46 Vice-President Executive vice president, chief economist, and
investment strategist of the Adviser; director of
research of the Adviser, 1991 to 1995
Stephen P. Lautz 39 Vice-President Vice president of the Adviser since May, 1994;
associate of the Adviser prior thereto
Eric S. Maddix 32 Vice-President Vice president of the Adviser since November, 1995;
portfolio manager or research assistant for the Adviser
since 1987
Lynn C. Maddox 55 Vice-President Senior vice president of the Adviser
Anne E. Marcel 38 Vice-President Vice president of the Adviser since April, 1996;
manager, Mutual Fund Sales & Services of the Adviser
since October, 1994; supervisor of the Counselor
Department of the Adviser from October, 1992 to
October, 1994; vice president of Selected Financial
Services from May, 1990 to March, 1992
Francis W. Morley(3) 76 Trustee Chairman of Employer Plan Administrators and
Consultants Co. (designer, administrator, and
communicator of employee benefit plans)
<PAGE> 24
Charles R. Nelson(3) 53 Trustee Van Voorhis Professor of Political Economy, University
of Washington
Nicolette D. Parrish 46 Vice-President; Senior compliance administrator and assistant secretary
Assistant Secretary of the Adviser since November, 1995; senior legal
assistant for the Adviser prior thereto
Richard B. Peterson 55 Vice-President Senior vice president of the Adviser since June, 1991;
officer of State Farm Investment Management Corporation
prior thereto
Sharon R. Robertson 34 Controller Accounting manager for the Adviser's Mutual Funds
division
Janet B. Rysz 40 Assistant Secretary Senior compliance administrator and assistant secretary
of the Adviser
Gloria J. Santella 38 Vice-President Senior vice president of the Adviser since November,
1995; vice president of the Adviser from January, 1992
to November, 1995; associate of the Adviser prior
thereto
Thomas P. Sorbo 35 Vice-President Senior vice president of the Adviser since January,
1994; vice president of the Adviser from September,
1992 to December, 1993; associate of Travelers
Insurance Company prior thereto
Thomas C. Theobald 58 Trustee Managing partner, William Blair Capital Partners
(private equity fund) since 1994; chief executive
officer and chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
Gordon R. Worley 76 Trustee Private investor
(2) (3)
Hans P. Ziegler 55 Executive Vice-President Chief executive officer of the Adviser since May, 1994;
president of the Investment Counsel division of the
Adviser from July, 1993 to June, 1994; president and
chief executive officer, Pitcairn Financial Management
Group prior thereto
Margaret O. Zwick 29 Treasurer Compliance manager for the Adviser's Mutual Funds
division since August 1995; compliance accountant,
January 1995 to July 1995; section manager, January
1994 to January 1995; supervisor, February 1990 to
December 1993
<FN>
____________________
(1) Trustee who is an "interested person" of the Trust and of
Stein Roe, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope
and results of the audit.
</TABLE>
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by the
Adviser. Ms. Bauer and Mr. Cook are vice presidents of the Fund's
distributor, Liberty Securities Corporation. The address of Mr.
Block is 11 Woodley Road, Winnetka, Illinois 60093; that of Mr.
Boyd is 2900 Golf Road, Rolling Meadows, Illinois 60008; that of
Mr. Cook is 600 Atlantic Avenue,
<PAGE> 25
Boston, Massachusetts 02210; that of Mr. Hacker is P.O. Box
66100, Chicago, IL 60666; that of Mr. Morley is 20 North Wacker
Drive, Suite 2275, Chicago, Illinois 60606; that of Mr. Nelson is
Department of Economics, University of Washington, Seattle,
Washington 98195; that of Mr. Theobald is Suite 3300, 222 West
Adams Street, Chicago, IL 60606; that of Mr. Worley is 1407
Clinton Place, River Forest, Illinois 60305; that of Messrs.
Bertocci, Cantor, and Harris is 1330 Avenue of the Americas, New
York, New York 10019; and that of the other officers is One South
Wacker Drive, Chicago, Illinois 60606.
Officers and trustees affiliated with Stein Roe serve without
any compensation from the Trust. In compensation for their
services to the Trust, trustees who are not "interested persons"
of the Trust or Stein Roe are paid an annual retainer of $8,000
(divided equally among the Funds of the Trust) plus an attendance
fee from each Fund for each meeting of the Board or committee
thereof attended at which business for that Fund is conducted.
The attendance fees (other than for a Nominating Committee
meeting) are based on each Fund's net assets as of the preceding
December 31. For a Fund with net assets of less than $251
million, the fee is $200 per meeting; with $251 million to $500
million, $350; with $501 million to $750 million, $500; with $750
million to $1 billion, $650; and with over $1 billion in net
assets, $800. Each non-interested trustee also receives an
aggregate of $500 for attending each meeting of the Nominating
Committee. The Trust has no retirement or pension plans. The
following table sets forth compensation paid by the Trust during
the fiscal year ended September 30, 1995 to each of the trustees:
Aggregate Total Compensation Paid
Compensation to Trustees from the Trust
Name of from the and the Stein Roe Fund
Trustee* Trust Complex**
------------ ------------ ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Alfred F. Kugel -0- -0-
Kenneth L. Block $26,800 $66,400
William W. Boyd 22,050 58,650
Francis W. Morley 26,200 66,000
Charles R. Nelson 28,550 68,350
Gordon R. Worley 26,200 66,000
_______________
* Messrs. Armour, Boyd, and Cook were elected trustees of the
Trust on January 17, 1995. Mr. Kugel was an affiliated trustee
through January 17, 1995. Messrs. Hacker and Theobald were
elected trustees on June 18, 1996.
** During this period, the Stein Roe Fund Complex consisted of
the six series of Stein Roe Income Trust, four series of Stein
Roe Municipal Trust, eight series of Stein Roe Investment Trust,
and one series of SR&F Base Trust.
FINANCIAL STATEMENTS
Please refer to the Fund's 9/30/95 Financial Statements
(balance sheets and schedules of investments as of 9/30/95 and the
statements of operations, changes in net assets, and notes
thereto) and the report of independent auditors contained in the
9/30/95 Annual Report of the Fund and to the Fund's 3/31/96
Financial Statements (unaudited balance sheets and schedules of
investments as of 3/31/96 and the
<PAGE> 26
statements of operations, changes in net assets, and notes
thereto) contained in the 3/31/96 Semiannual Report of the Fund.
The Financial Statements and the report of independent auditors
(but no other material from the Annual Report or the Semiannual
Report) are incorporated herein by reference. The Annual Report
and the Semiannual Report may be obtained at no charge by
telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of October 31, 1995, the only person known by the Trust to
own of record or "beneficially" 5% or more of the outstanding
shares of the Fund within the definition of that term as contained
in Rule 13d-3 under the Securities Exchange Act of 1934 was as
follows:
Approximate Percentage of
Name and Address Outstanding Shares Held
- ------------------------------ ---------------------------
Keyport Life Insurance Company 16.98%
125 High Street
Boston, MA 02110
The following table shows shares of the Fund held by the
categories of persons indicated, and in each case the approximate
percentage of outstanding shares represented:
CLIENTS OF THE
ADVISER IN THEIR TRUSTEES AND
CLIENT ACCOUNTS OFFICERS
AS OF 10/31/95 AS OF 10/31/95
--------------- ----------------
SHARES SHARES
HELD PERCENT HELD PERCENT
------ ------- ------- --------
3,836 ** 614 **
______________
*Stein Roe may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by Stein Roe under Rule 13d-3. However, Stein
Roe disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated, the Fund's investment
adviser, is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Funds' transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which is a majority-owned subsidiary of Liberty
Mutual Equity Corporation, which is a wholly owned subsidiary of
Liberty Mutual Insurance Company. Liberty Mutual Insurance
Company is a mutual insurance company, principally in the
property/casualty insurance field, organized under the laws of
Massachusetts in 1912.
The directors of Stein Roe are Kenneth R. Leibler, C. Allen
Merritt, Jr., Timothy K. Armour, N. Bruce Callow, and Hans P.
Ziegler. Mr. Leibler is President and Chief Executive Officer of
Liberty Financial; Mr. Merritt is Senior Vice President and
Treasurer of Liberty Financial; Mr. Armour is President of Stein
Roe's Mutual Funds division; Mr. Callow is President of Stein
Roe's Investment Counsel division; and Mr. Ziegler is Chief
Executive Officer of Stein Roe. The business address of Messrs.
Leibler and Merritt is Federal Reserve Plaza, Boston,
Massachusetts 02210; and that of
<PAGE> 27
Messrs. Armour, Callow, and Ziegler is One South Wacker Drive,
Chicago, Illinois 60606.
Stein Roe and its predecessor have been providing investment
advisory services since 1932. Stein Roe acts as investment
adviser to wealthy individuals, trustees, pension and profit
sharing plans, charitable organizations, and other institutional
investors. As of September 30, 1995, Stein Roe managed over $22.9
billion in assets: over $5.5 billion in equities and over $17.4
billion in fixed income securities (including $2.3 billion in
municipal securities). The $22.9 billion in managed assets
included over $5.7 billion held by open-end mutual funds managed
by Stein Roe (approximately 21% of the mutual fund assets were
held by clients of Stein Roe). These mutual funds were owned by
over 148,000 shareholders. The $5.7 billion in mutual fund assets
included over $570 million in over 33,000 IRA accounts. In
managing those assets, Stein Roe utilizes a proprietary computer-
based information system that maintains and regularly updates
information for approximately 6,500 companies. Stein Roe also
monitors over 1,400 issues via a proprietary credit analysis
system. At September 30, 1995, Stein Roe employed 17 research
analysts and 36 account managers. The average investment-related
experience of these individuals was 20 years.
Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] are professional investment advisory
services offered to Fund shareholders. Each is designed to help
shareholders construct Fund investment portfolios to suit their
individual needs. Based on information shareholders provide about
their financial circumstances, goals, and objectives in response
to a questionnaire, Stein Roe's investment professionals create
customized portfolio recommendations for investments in the Fund
and other mutual funds managed by Stein Roe. Shareholders
participating in Stein Roe Counselor [SERVICE MARK] are free to
self direct their investments while considering Stein Roe's
recommendations; shareholders participating in Stein Roe Counselor
Preferred [SERVICE MARK] enjoy the added benefit of having Stein
Roe implement portfolio recommendations automatically for a fee of
1% or less, depending on the size of their portfolios. In
addition to reviewing shareholders' circumstances, goals, and
objectives periodically and updating portfolio recommendations to
reflect any changes, the shareholders who participate in these
programs are assigned a dedicated Counselor [SERVICE MARK]
representative. Other distinctive services include specially
designed account statements with portfolio performance and
transaction data, newsletters, and regular investment, economic,
and market updates. A $50,000 minimum investment is required to
participate in either program. Other similar programs with
different fee structures may be offered through affiliates of
Stein Roe.
Please refer to the description of Stein Roe, management
agreement, administrative agreement, fees, expense limitations,
and transfer agency services under Management of the Fund in the
Prospectus, which is incorporated herein by reference. From the
Fund's inception on April 29, 1994 through September 30, 1994,
pursuant to the expense undertaking, Stein Roe reimbursed the Fund
$82,109, resulting in a net payment by Stein Roe of $64,954. For
the fiscal year ended September 30, 1995, Stein Roe reimbursed the
Fund $322,803, resulting in a net payment by Stein Roe of
$191,821.
<PAGE> 28
Stein Roe provides office space and executive and other
personnel to the Fund and bears any sales or promotional expenses.
The Fund pays all expenses other than those paid by Stein Roe,
including but not limited to printing and postage charges and
securities registration and custodian fees and expenses incidental
to its organization.
The administrative agreement provides that Stein Roe shall
reimburse the Fund to the extent that total annual expenses of the
Fund (including fees paid to Stein Roe, but excluding taxes,
interest, brokers' commissions and other normal charges incident
to the purchase and sale of portfolio securities, and expenses of
litigation to the extent permitted under applicable state law)
exceed the applicable limits prescribed by any state in which
shares of the Fund are being offered for sale to the public;
provided, however, that Stein Roe is not required to reimburse the
Fund an amount in excess of the management fee from the Fund for
such year. The Trust believes that currently the most restrictive
state limit on mutual fund expenses is that of California, which
limit currently is 2 1/2% of the first $30 million of average net
assets, 2% of the next $70 million, and 1 1/2% thereafter. In
addition, in the interest of further limiting expenses of the
Fund, Stein Roe may voluntarily waive its management fee and/or
absorb certain expenses for the Fund, as described under Fee Table
in the Prospectus. Any such reimbursement will enhance the yield
of the Fund.
The management agreement provides that neither Stein Roe, nor
any of its directors, officers, stockholders (or partners of
stockholders), agents, or employees shall have any liability to
the Trust or any shareholder of the Trust for any error of
judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by
Stein Roe of its duties under the agreement, except for liability
resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under the agreement.
Any expenses that are attributable solely to the
organization, operation, or business of the Fund shall be paid
solely out of the Fund's assets. Any expenses incurred by the
Trust that are not solely attributable to a particular series are
apportioned in such manner as Stein Roe determines is fair and
appropriate, unless otherwise specified by the Board of Trustees.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Trust, Stein Roe
receives a fee for performing certain bookkeeping and accounting
services for the Fund. For these services, Stein Roe receives an
annual fee of $25,000 per Fund plus .0025 of 1% of average net
assets over $50 million. During the fiscal year ended September
30, 1995, Stein Roe received aggregate fees of $192,479 from the
Trust for services performed under this Agreement.
<PAGE> 29
DISTRIBUTOR
Shares of the Fund are distributed by Liberty Securities
Corporation ("LSC") under a Distribution Agreement as described
under Management of the Fund in the Prospectus, which is
incorporated herein by reference. The Distribution Agreement
continues in effect from year to year, provided such continuance
is approved annually (i) by a majority of the trustees or by a
majority of the outstanding voting securities of the Trust, and
(ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The Trust has
agreed to pay all expenses in connection with registration of its
shares with the Securities and Exchange Commission and auditing
and filing fees in connection with registration of its shares
under the various state blue sky laws and assumes the cost of
preparation of prospectuses and other expenses.
As agent, LSC offers shares of the Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. In addition, no sales commission or "12b-1" payment is
paid by the Fund. LSC offers the Fund's shares only on a best-
efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management of the Fund in the Prospectus. For
performing these services, SSI receives from the Fund a fee based
on an annual rate of .22 of 1% of average net assets. Prior to
May 1, 1995, SSI received the following payments from the Fund:
(1) a fee of $4.00 for each new account opened; (2) monthly
payments of $1.063 per open shareholder account; (3) payments of
$0.367 per closed shareholder account for each month through June
of the calendar year following the year in which the account is
closed; (4) $0.3025 per shareholder account for each dividend
paid; and (5) $1.415 for each shareholder-initiated transaction.
The Trust believes the charges by SSI to the Fund are comparable
to those of other companies performing similar services. (See
Investment Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Trust. It is responsible for holding all securities and cash
of the Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Fund, and performing other administrative duties,
all as directed by authorized persons. The custodian does not
exercise any supervisory function in such matters as purchase and
sale of portfolio securities, payment of dividends, or payment of
expenses of the Fund.
<PAGE> 30
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network, and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
The Board of Trustees reviews, at least annually, whether it
is in the best interest of the Fund and its shareholders for the
Fund to maintain assets in each of the countries in which it
invests with particular foreign sub-custodians in such countries,
pursuant to contracts between such respective foreign sub-
custodians and the Bank. The review includes an assessment of the
risks of holding assets in any such country (including risks of
expropriation or imposition of exchange controls), the operational
capability and reliability of each such foreign sub-custodian, and
the impact of local laws on each such custody arrangement. The
Board of Trustees is aided in its review by the Bank, which has
assembled the network of foreign sub-custodians utilized, as well
as by Stein Roe and counsel. However, with respect to foreign
sub-custodians, there can be no assurance that the Fund, and the
value of its shares, will not be adversely affected by acts of
foreign governments, financial or operational difficulties of the
foreign sub-custodians, difficulties and costs of obtaining
jurisdiction over, or enforcing judgments against, the foreign
sub-custodians, or application of foreign law to the Fund's
foreign sub-custodial arrangements. Accordingly, an investor
should recognize that the non-investment risks involved in holding
assets abroad are greater than those associated with investing in
the United States.
The Fund may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur
Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603. The
accountants audit and report on the Fund's annual financial
statements, review certain regulatory reports and the Fund's
federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to do
so by the Trust.
PORTFOLIO TRANSACTIONS
Stein Roe places the orders for the purchase and sale of the
Fund's portfolio securities and options and futures contracts.
Stein Roe's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price
and execution. The best net price, giving effect to brokerage
commissions, if any, and other transaction costs, normally is an
important factor in this decision, but a number of other
judgmental factors may also enter into the decision. These
include: Stein Roe's knowledge of negotiated commission rates
currently available and other current transaction costs; the
nature of the security being traded; the size of the transaction;
<PAGE> 31
the desired timing of the trade; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others which are
considered; Stein Roe's knowledge of the financial stability of
the broker or dealer selected and such other brokers or dealers;
and Stein Roe's knowledge of actual or apparent operational
problems of any broker or dealer. Recognizing the value of these
factors, the Fund may pay a brokerage commission in excess of that
which another broker or dealer may have charged for effecting the
same transaction. Evaluations of the reasonableness of brokerage
commissions, based on the foregoing factors, are made on an
ongoing basis by Stein Roe's staff while effecting portfolio
transactions. The general level of brokerage commissions paid is
reviewed by Stein Roe, and reports are made annually to the Board
of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to be
capable of providing the best combination of price and execution
with respect to a particular portfolio transaction for the Fund,
Stein Roe often selects a broker or dealer that has furnished it
with research products or services such as research reports,
subscriptions to financial publications and research compilations,
compilations of securities prices, earnings, dividends, and
similar data, and computer data bases, quotation equipment and
services, research-oriented computer software and services, and
services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding
with any of the brokers or dealers; however, Stein Roe uses an
internal allocation procedure to identify those brokers or dealers
who provide it with research products or services and the amount
of research products or services they provide, and endeavors to
direct sufficient commissions generated by its clients' accounts
in the aggregate, including the Fund, to such brokers or dealers
to ensure the continued receipt of research products or services
Stein Roe feels are useful. In certain instances, Stein Roe
receives from brokers and dealers products or services that are
used both as investment research and for administrative,
marketing, or other non-research purposes. In such instances,
Stein Roe makes a good faith effort to determine the relative
proportions of such products or services which may be considered
as investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by
Stein Roe (without prior agreement or understanding, as noted
above) through brokerage commissions generated by transactions by
clients (including the Fund), while the portions of the costs
attributable to non-research usage of such products or services is
paid by Stein Roe in cash. No person acting on behalf of the Fund
is authorized, in recognition of the value of research products or
services, to pay a commission in excess of that which another
broker or dealer might have charged for effecting the same
transaction. Research products or services furnished by brokers
and dealers may be used in servicing any or all of the clients of
Stein Roe and not all such research products or services are used
in connection with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis,
Stein Roe may also consider the part, if any,
<PAGE> 32
played by the broker or dealer in bringing the security involved
to Stein Roe's attention, including investment research related to
the security and provided to the Fund.
The table below shows information on brokerage commissions
paid by the Fund:
Total amount of brokerage commissions paid during
fiscal year ended 9/30/95 $ 38,043
Amount of commissions paid to brokers or dealers
who supplied research services to Stein Roe 24,428
Total dollar amount involved in such transactions 11,129,502
Amount of commissions paid to brokers or dealers
that were allocated to such brokers or dealers
by the Fund's portfolio manager because of
research services provided to the Fund 6,379
Total dollar amount involved in such transactions 2,973,000
Total amount of brokerage commissions paid during
period ended 9/30/94 13,680
The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian as
a soliciting dealer in connection with any tender offer for
portfolio securities. The custodian will credit any such fees
received against its custodial fees. In addition, the Board of
Trustees has reviewed the legal developments pertaining to and the
practicability of attempting to recapture underwriting discounts
or selling concessions when portfolio securities are purchased in
underwritten offerings. However, the Board has been advised by
counsel that recapture by a mutual fund currently is not permitted
under the Rules of Fair Practice of the National Association of
Securities Dealers.
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund intends to comply with the special provisions of
Subchapter M of the Internal Revenue Code that relieve it of
federal income tax to the extent of its net investment income and
capital gains currently distributed to shareholders.
Because dividend and capital gain distributions reduce net
asset value, a shareholder who purchases shares shortly before a
record date will, in effect, receive a return of a portion of his
investment in such distribution. The distribution would
nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income
tax purposes the shareholder's original cost would continue as his
tax basis.
The Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
To the extent the Fund invests in foreign securities, it may
be subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of the Fund's total
assets at the close of any fiscal year consist of stock or
securities of foreign
<PAGE> 33
corporations, the Fund may file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be
required to (i) include in ordinary gross income (in addition to
taxable dividends actually received) their pro rata shares of
foreign income taxes paid by the Fund even though not actually
received, (ii) treat such respective pro rata shares as foreign
income taxes paid by them, and (iii) deduct such pro rata shares
in computing their taxable incomes, or, alternatively, use them as
foreign tax credits, subject to applicable limitations, against
their United States income taxes. Shareholders who do not itemize
deductions for federal income tax purposes will not, however, be
able to deduct their pro rata portion of foreign taxes paid by the
Fund, although such shareholders will be required to include their
share of such taxes in gross income. Shareholders who claim a
foreign tax credit may be required to treat a portion of dividends
received from the Fund as separate category income for purposes of
computing the limitations on the foreign tax credit available to
such shareholders. Tax-exempt shareholders will not ordinarily
benefit from this election relating to foreign taxes. Each year,
the Fund will notify shareholders of the amount of (i) each
shareholder's pro rata share of foreign income taxes paid by the
Fund and (ii) the portion of Fund dividends which represents
income from each foreign country, if the Fund qualifies to pass
along such credit.
INVESTMENT PERFORMANCE
The Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of
the period and subtracting one. For a given period, an "Average
Annual Total Return" may be computed by finding the average annual
compounded rate that would equate a hypothetical initial amount
invested of $1,000 to the ending redeemable value.
Average Annual Total Return is computed as follows:
n
ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the end
of the period (or fractional portion thereof).
For example, for a $1,000 investment in the Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at September 30, 1995 were:
TOTAL TOTAL RETURN AVERAGE ANNUAL
RETURN RETURN PERCENTAGE TOTAL RETURN
------- ----------------- -------------
1 year $1,406 40.58% 40.58%
*Life of Fund 1,440 43.96 29.33
________________________
*Life of Fund is from its date of public offering, 4/29/94.
<PAGE> 34
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of future
results. The performance of the Fund is a result of conditions in
the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful
in reviewing the Fund's performance and in providing some basis
for comparison with other investment alternatives, it should not
be used for comparison with other investments using different
reinvestment assumptions or time periods.
In advertising and sales literature, the Fund may compare its
performance with that of other mutual funds, indexes or averages
of other mutual funds, indexes of related financial assets or
data, and other competing investment and deposit products
available from or through other financial institutions. The
composition of these indexes or averages differs from that of the
Fund. Comparison of the Fund to an alternative investment should
be made with consideration of differences in features and expected
performance.
All of the indexes and averages noted below will be obtained
from the indicated sources or reporting services, which the Fund
believes to be generally accurate. The Fund may also note its
mention or recognition in newspapers, magazines, or other media
from time to time. However, the Fund assumes no responsibility
for the accuracy of such data. Newspapers and magazines which
might mention the Fund include, but are not limited to, the
following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
<PAGE> 35
Smithsonian
Strategic Insight
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
The Fund may compare its performance to the Consumer Price
Index (All Urban), a widely recognized measure of inflation.
The Fund's performance may be compared to the following
indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite
Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite
Index
Standard & Poor's 400 Industrials NASDAQ Composite
Wilshire 5000 NASDAQ Industrials
(These indexes are widely (These indexes generally reflect the
recognized indicators of general performance of stocks traded in the
U.S. stock market results.) indicated markets.)
In addition, the Fund may compare performance with the
following indexes:
Lipper Equity Funds Average
Lipper General Equity Funds Average
Lipper Growth Fund Index
Lipper Growth Funds Average
ICD Aggressive Growth and Long-Term Growth Funds Average
ICD All Equity Funds Average
ICD General Equity Average*
ICD Long-Term Growth Funds Average
ICD Long-Term Growth Funds Index
Morningstar All Equity Funds Average
Morningstar Equity Fund Average
Morningstar General Equity Average**
Morningstar Growth Average
Morningstar Hybrid Fund Average
Morningstar U.S. Diversified Average
*Includes ICD Aggressive Growth, Growth & Income, Long-Term
Growth, and Total Return averages
**Includes Morningstar Aggressive Growth, Growth, Balanced, Equity
Income, and Growth & Income averages
The ICD Indexes reflect the unweighted average total return
of the largest twenty funds within their respective category as
calculated and published by ICD.
The Lipper averages are unweighted averages of total return
performance as classified, calculated, and published by Lipper.
Lipper Growth Fund index reflects the net asset value weighted
total return of the largest thirty growth funds and thirty growth
and income funds, respectively, as calculated and published by
Lipper.
<PAGE> 36
The Lipper, ICD, and Morningstar averages are unweighted
averages of total return performance of mutual funds as
classified, calculated, and published by these independent
services that monitor the performance of mutual funds. The Fund
may also use comparative performance as computed in a ranking by
Lipper or category averages and rankings provided by another
independent service. Should Lipper or another service reclassify
the Fund to a different category or develop (and place the Fund
into) a new category, the Fund may compare its performance or
ranking with those of other funds in the newly assigned category,
as published by the service.
The Fund may also cite its rating, recognition, or other
mention by Morningstar or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is
computed by subtracting the Fund's risk score (which is a function
of the Fund's monthly returns less the 3-month T-bill return) from
the Fund's load-adjusted total return score. This numerical score
is then translated into rating categories, with the top 10%
labeled five star, the next 22.5% labeled four star, the next 35%
labeled three star, the next 22.5% labeled two star, and the
bottom 10% one star. A high rating reflects either above-average
returns or below-average risk, or both.
Of course, past performance is not indicative of future
results.
_________________
To illustrate the historical returns on various types of
financial assets, the Fund may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment
firm. Ibbotson constructs (or obtains) very long-term (since
1926) total return data (including, for example, total return
indexes, total return percentages, average annual total returns
and standard deviations of such returns) for the following asset
types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
________________
The Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such
example is reflected in the chart below, which shows the effect
of tax deferral on a hypothetical investment. This chart assumes
that an investor invested $2,000 a year on January 1, for any
specified period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 6%, 8% or 10%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
<PAGE> 37
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
Dollar Cost Averaging. Dollar cost averaging is an investment
strategy that requires investing a fixed amount of money in Fund
shares at set intervals. This allows you to purchase more shares when
prices are low and fewer shares when prices are high. Over time, this
tends to lower your average cost per share.
Like any investment strategy, dollar cost averaging can't
guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
From time to time, the Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[SERVICE MARK] and the Stein Roe Counselor Preferred [SERVICE
MARK] programs and asset allocation and other investment
strategies.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion
as to the credit quality of the security being rated. However,
the ratings are general and are not absolute standards of quality
or guarantees as to the creditworthiness of an issuer.
Consequently, Stein Roe believes that the quality of debt
securities in which the Fund invests should be continuously
reviewed and that individual analysts give different weightings to
the various factors involved in credit analysis. A rating is not
a recommendation to purchase, sell or hold a security because it
does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information furnished
by the issuer or obtained by the rating services from other
sources which they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability
of such information, or for other reasons.
<PAGE> 38
The following is a description of the characteristics of
ratings of corporate debt securities used by Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
RATINGS BY MOODY'S
AAA. Bonds rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or an exceptionally stable margin and principal is secure.
Although the various protective elements are likely to change,
such changes as can be visualized are more unlikely to impair the
fundamentally strong position of such bonds.
AA. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA. Bonds rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
CA. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
<PAGE> 39
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for debt in higher rated categories.
BB, B, CCC, CC, AND C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no interest
is being paid.
D. Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears. The D rating is also used
upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same basis
as domestic debt measuring the creditworthiness of the issuer;
ratings of foreign debt do not take into account currency exchange
and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility
or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or
interest return is indexed to equities, commodities, or
currencies; certain swaps and
<PAGE> 40
options; and interest only and principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication
that an obligation will exhibit no volatility or variability in
total return.
_________________
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) 1. Financial statements included in Part A of this Amendment
to the Registration Statement: Financial Highlights.
2. Financial statements included in Part B of this Amendment:
Financial statements (investments as of 9/30/95, balance
sheets as of 9/30/95, statements of operations for the
year ended 9/30/95, statements of changes in net assets
for each of the two years in the period ended June 30, 1995,
and notes thereto) are incorporated by reference to
Registrant's 9/30/95 annual reports. Investments as of
3/31/96, balance sheets as of 3/31/96, statements of
operations for the period ended 3/31/96, statements of
changes in net assets for the period ended 3/31/96, and
notes thereto are incorporated by reference to Registrant's
3/31/96 semiannual reports.
(b) Exhibits: [Note: As used herein, the term "Registration
Statement" refers to the Registration Statement of the
Registrant on Form N-1A under the Securities Act of 1933, No.
33-11351. The terms "Pre-Effective Amendment" and "PEA"
refer, respectively, to a pre-effective amendment and a post-
effective amendment to the Registration Statement.]
1. Agreement and Declaration of Trust as amended through
February 1, 1996. (Exhibit 1 to PEA #32.)*
2. By-Laws of Registrant as amended through February 3, 1993.
3. None.
4. Inapplicable.
5. (a) Management agreement between Registrant and Stein Roe &
Farnham Incorporated (the "Adviser"), relating to the
series Stein Roe Growth & Income Fund, Stein Roe
Young Investor Fund, Stein Roe Balanced Fund, Stein Roe
Growth Stock Fund, Stein Roe Capital Opportunities
Fund, Stein Roe Special Fund, Stein Roe International
Fund, and Stein Roe Special Venture Fund as amended
through July 1, 1996.
(b) Expense undertakings relating to Stein Roe
International Fund, Stein Roe Young Investor Fund and
Stein Roe Special Venture Fund dated February 1, 1996.
(Exhibit 5(d) to PEA #32.)*
(c) Expense undertaking relating to Stein Roe Special Fund
dated July 1, 1996.
6. Underwriting agreement between Registrant and Liberty
Securities Corporation dated June 22, 1987 as amended
through October 28, 1992.
7. None.
8. Custodian contract between Registrant and State Street
Bank and Trust Company as amended through May 8, 1995.
(Exhibit 8 to PEA #31.)*
9. (a) Restated Transfer Agency Agreement between Registrant
and SteinRoe Services Inc. dated August 1, 1995.(Exhibit
9(a) to PEA No. 31.)*
(b) Accounting and Bookkeeping Agreement dated August 1,
1994.
(c) Administrative Agreement between Registrant and the
Adviser dated August 15, 1995 as amended through July 1,
1996.
10. (a) Opinions and consents of Ropes & Gray.
(b) Opinions and consents of Bell, Boyd & Lloyd with respect
to SteinRoe Prime Equities (now named Stein Roe Growth &
Income Fund), Stein Roe Capital Opportunities Fund, Stein
Roe Special Fund, SteinRoe Stock Fund (now named Stein Roe
Growth Stock Fund), SteinRoe Total Return Fund (now named
Stein Roe Balanced Fund), Stein Roe International Fund,
Stein Roe Young Investor Fund, and Stein Roe Special
Venture Fund.
11. (a) Consent of Arthur Andersen LLP, independent public
accountants.
(b) Consent of Morningstar, Inc.
12. None.
13. Inapplicable.
14. (a) Stein Roe & Farnham Funds Individual Retirement
Account Plan. (Exhibit 14(a) to PEA #33.)*
(b) Stein Roe & Farnham Prototype Paired Defined
Contribution Plan.**
15. None.
16. Schedules for computation of each performance
quotation provided in the Registration Statement in
response to Item 22 for SteinRoe Prime Equities (now
named Stein Roe Growth & Income Fund), Stein Roe Total
Return Fund (now named Stein Roe Balanced Fund), Stein Roe
Stock Fund (now named Stein Roe Growth Stock Fund), Stein
Roe Capital Opportunities Fund, Stein Roe Special Fund,
Stein Roe International Fund, Stein Roe Young Investor Fund,
and Stein Roe Special Venture Fund.
17. (a) Financial Data Schedule--Stein Roe Growth & Income Fund.
(b) Financial Data Schedule--Stein Roe Balanced Fund.
(c) Financial Data Schedule--Stein Roe Growth Stock Fund.
(d) Financial Data Schedule--Stein Roe Capital Opportunities
Fund.
(e) Financial Data Schedule--Stein Roe Special Fund.
(f) Financial Data Schedule--Stein Roe International Fund.
(g) Financial Data Schedule--Stein Roe Young Investor Fund.
(h) Financial Data Schedule--Stein Roe Special Venture Fund.
18. Inapplicable
19. (Miscellaneous.)
(a) Fund Application. (Exhibit 19(a) to PEA #33.)*
(b) Stein Roe Young Investor Fund application. (Exhibit
19(b) to PEA #33.)*
(c) Automatic Redemption Services Application.
_______________________
*Incorporated by reference.
**Incorporated by reference to Exhibit 14(b) to Post-Effective
Amendment No. #13 to the Registration Statement on Form N-1A of
Stein Roe Income Trust, No. 33-02633.
Item 25. Persons Controlled By or Under Common Control with
Registrant.
The Registrant does not consider that it is directly or indirectly
controlling, controlled by, or under common control with other
persons within the meaning of this Item. See "Investment Advisory
Services," "Management," and "Transfer Agent" in the Statement of
Additional Information, each of which is incorporated herein by
reference.
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Series as of June 7, 1996
--------------------------------- -------------------------
Stein Roe Growth & Income Fund 5,605
Stein Roe International Fund 3,409
Stein Roe Young Investor Fund 33,003
Stein Roe Special Venture Fund 2,313
Stein Roe Balanced Fund 6,950
Stein Roe Growth Stock Fund 11,882
Stein Roe Capital Opportunities Fund 24,905
Stein Roe Special Fund 36,960
Item 27. Indemnification.
Article Tenth of the Agreement and Declaration of Trust of
Registrant (Exhibit 1), which Article is incorporated herein by
reference, provides that Registrant shall provide indemnification
of its trustees and officers (including each person who serves or
has served at Registrant's request as a director, officer, or
trustee of another organization in which Registrant has any
interest as a shareholder, creditor or otherwise) ("Covered
Persons") under specified circumstances.
Section 17(h) of the Investment Company Act of 1940 ("1940 Act")
provides that neither the Agreement and Declaration of Trust nor
the By-Laws of Registrant, nor any other instrument pursuant to
which Registrant is organized or administered, shall contain any
provision which protects or purports to protect any trustee or
officer of Registrant against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. In
accordance with Section 17(h) of the 1940 Act, Article Tenth shall
not protect any person against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Unless otherwise permitted under the 1940 Act,
(i) Article Tenth does not protect any person against any
liability to Registrant or to its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office;
(ii) in the absence of a final decision on the merits by a
court or other body before whom a proceeding was brought that a
Covered Person was not liable by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office, no indemnification is
permitted under Article Tenth unless a determination that such
person was not so liable is made on behalf of Registrant by (a)
the vote of a majority of the trustees who are neither "interested
persons" of Registrant, as defined in Section 2(a)(19) of the 1940
Act, nor parties to the proceeding ("disinterested, non-party
trustees"), or (b) an independent legal counsel as expressed in a
written opinion; and
(iii) Registrant will not advance attorneys' fees or other
expenses incurred by a Covered Person in connection with a civil
or criminal action, suit or proceeding unless Registrant receives
an undertaking by or on behalf of the Covered Person to repay the
advance (unless it is ultimately determined that he is entitled to
indemnification) and (a) the Covered Person provides security for
his undertaking, or (b) Registrant is insured against losses
arising by reason of any lawful advances, or (c) a majority of the
disinterested, non-party trustees of Registrant or an independent
legal counsel as expressed in a written opinion, determine, based
on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to
indemnification.
Any approval of indemnification pursuant to Article Tenth does not
prevent the recovery from any Covered Person of any amount paid to
such Covered Person in accordance with Article Tenth as
indemnification if such Covered Person is subsequently adjudicated
by a court of competent jurisdiction not to have acted in good
faith in the reasonable belief that such Covered Person's action
was in, or not opposed to, the best interests of Registrant or to
have been liable to Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such Covered
Person's office.
Article Tenth also provides that its indemnification provisions
are not exclusive.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers, and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by Registrant of expenses incurred or paid by a trustee, officer,
or controlling person of Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such trustee,
officer, or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Registrant, its trustees and officers, its investment adviser, the
other investment companies advised by the adviser, and persons
affiliated with them are insured against certain expenses in
connection with the defense of actions, suits, or proceedings, and
certain liabilities that might be imposed as a result of such
actions, suits, or proceedings. Registrant will not pay any
portion of the premiums for coverage under such insurance that
would (1) protect any trustee or officer against any liability to
Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office or (2) protect its investment adviser or
principal underwriter, if any, against any liability to Registrant
or its shareholders to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of its duties, or by reason of its
reckless disregard of its duties and obligations under its
contract or agreement with the Registrant; for this purpose the
Registrant will rely on an allocation of premiums determined by
the insurance company.
Pursuant to the indemnification agreement among the Registrant,
its transfer agent and its investment adviser dated July 1, 1995,
the Registrant, its trustees, officers and employees, its transfer
agent and the transfer agent's directors, officers and employees
are indemnified by Registrant's investment adviser against any and
all losses, liabilities, damages, claims and expenses arising out
of any act or omission of the Registrant or its transfer agent
performed in conformity with a request of the investment adviser
that the transfer agent and the Registrant deviate from their
normal procedures in connection with the issue, redemption or
transfer of shares for a client of the investment adviser.
Registrant, its trustees, officers, employees and representatives
and each person, if any, who controls the Registrant within the
meaning of Section 15 of the Securities Act of 1933 are
indemnified by the distributor of Registrant's shares (the
"distributor"), pursuant to the terms of the distribution
agreement, which governs the distribution of Registrant's shares,
against any and all losses, liabilities, damages, claims and
expenses arising out of the acquisition of any shares of the
Registrant by any person which (i) may be based upon any wrongful
act by the distributor or any of the distributor's directors,
officers, employees or representatives or (ii) may be based upon
any untrue or alleged untrue statement of a material fact
contained in a registration statement, prospectus, statement of
additional information, shareholder report or other information
covering shares of the Registrant filed or made public by the
Registrant or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
therein not misleading if such statement or omission was made in
reliance upon information furnished to the Registrant by the
distributor in writing. In no case does the distributor's
indemnity indemnify an indemnified party against any liability to
which such indemnified party would otherwise be subject by reason
of willful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his
reckless disregard of its or his obligations and duties under the
distribution agreement.
Item 28. Business and Other Connections of Investment Adviser.
The Adviser, Stein Roe & Farnham Incorporated, is a wholly-owned
subsidiary of SteinRoe Services Inc. ("SSI"), which in turn is a
wholly-owned subsidiary of Liberty Financial Companies, Inc.,
which in turn is a subsidiary of Liberty Mutual Equity
Corporation, which in turn is a subsidiary of Liberty Mutual
Insurance Company. The Adviser acts as investment adviser to
individuals, trustees, pension and profit-sharing plans,
charitable organizations, and other investors. In addition to
Registrant, it also acts as investment adviser to other no-load
investment companies having different investment policies.
During the past two years, neither the Adviser nor any of its directors
or officers, except for Kenneth R. Leibler, C. Allen Merritt, Jr., N.
Bruce Callow, Bruno Bertocci, and David P. Harris has been engaged in any
business, profession, vocation, or employment of a substantial nature
either on their own account or in the capacity of director, officer,
partner, or trustee, other than as an officer or associate of the
Adviser. Mr. Leibler is President and Chief Executive Officer of Liberty
Financial Companies, Inc.; Mr. Merritt is Senior Vice President and
Treasurer of Liberty Financial Companies, Inc.; Mr. Callow was senior
vice president of trust and financial services for The Northern Trust
prior to June, 1994. Messrs. Bertocci and Harris were global equity
portfolio managers with Rockefeller & Co. prior to May, 1995 and,
commencing January 1, 1996, are dually employed by Colonial Management
Associates, Inc. as vice presidents and portfolio managers.
Certain directors and officers of the Adviser also serve and have
during the past two years served in various capacities as
officers, directors, or trustees of SSI and of the Registrant,
Stein Roe Income Trust, Stein Roe Municipal Trust, SR&F Base
Trust, SteinRoe Variable Investment Trust and LFC Utilities Trust,
investment companies managed by the Adviser. (The listed entities
are located at One South Wacker Drive, Chicago, Illinois 60606,
except for SteinRoe Variable Investment Trust and LFC Utilities
Trust, which are located at Federal Reserve Plaza, Boston, MA
02210.) A list of such capacities is given below.
POSITION FORMERLY
HELD WITHIN
CURRENT POSITION PAST TWO YEARS
------------------- --------------
STEINROE SERVICES INC.
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President; Secretary
Philip D. Hausken Vice President
Kenneth J. Kozanda Vice President; Treasurer
Stephen P. Lautz Vice President
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice President
Hans P. Ziegler Director, President, Vice Chairman
Chairman
SR&F BASE TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Ann H. Benjamin Vice-President
N. Bruce Callow Executive Vice-President
Philip D. Hausken Vice-President
Michael T. Kennedy Vice-President
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEIN ROE INCOME TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Ann H. Benjamin Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Philip D. Hausken Vice-President
Michael T. Kennedy Vice-President
Stephen P. Lautz Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEIN ROE INVESTMENT TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Bruno Bertocci Vice-President
David P. Brady Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Daniel K. Cantor Vice-President
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
David P. Harris Vice-President
Philip D. Hausken Vice-President
Harvey B. Hirschhorn Vice-President
Alfred F. Kugel Trustee
Stephen P. Lautz Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Richard B. Peterson Vice-President
Gloria J. Santella Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE MUNICIPAL TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Joanne T. Costopoulos Vice-President
Philip D. Hausken Vice-President
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
M. Jane McCart Vice-President
Anne E. Marcel Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEINROE VARIABLE INVESTMENT TRUST
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
LFC UTILITIES TRUST
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
Item 29. Principal Underwriters.
Registrant's principal underwriter, Liberty Securities
Corporation, is a wholly-owned subsidiary of Liberty Investment
Services, Inc., which in turn is a wholly-owned subsidiary of
Liberty Financial Companies, Inc., which in turn is a subsidiary
of Liberty Mutual Equity Corporation, which in turn is a
subsidiary of Liberty Mutual Insurance Company. Liberty
Securities Corporation is principal underwriter for the following
investment companies:
Stein Roe Income Trust
Stein Roe Municipal Trust
Stein Roe Investment Trust
Liberty Growth Properties Limited Partnership
Liberty Income Properties Limited Partnership
Liberty/Heritage Limited Partnership II
Liberty/Kuester Limited Partnership III
Liberty/Manhattan Beach Limited Partnership
Liberty/High Income Plus Limited Partnership
Liberty/Overland Park Limited Partnership
Set forth below is information concerning the directors and
officers of Liberty Securities Corporation:
Positions
Positions and Offices and Offices
Name with Underwriter with Registrant
- ------------------ -------------------- ---------------
Porter P. Morgan Chairman of the Board; Director None
Frank L. Tarantino President; Chief Operating
Officer; Director None
Robert L. Spadafora Executive Vice President -
Sales and Marketing None
John T. Treece, Jr. Senior Vice President - Operations None
John W. Reading Senior Vice President, General
Counsel, and Assistant Secretary None
Robert M. Young Senior Vice President - Sales
Development None
Valerie Arendell Senior Vice President - Sales None
Philip J. Iudice Treasurer None
Joanne K. Novak Vice President - Human Resources None
Helene L. Young Vice President - Sales Support None
Gerald H. Stanney, Vice President and Compliance
Jr. Officer (Boston) None
Jilaine Hummel Bauer Vice President and Compliance Exec. V-P &
Officer (Chicago) Secretary
Lindsay Cook Vice President Trustee
Ralph E. Nixon Vice President None
Diane L. Basler Vice President None
Glenn E. Williams Assistant Vice President None
John A. Benning Secretary None
C. Allen Merritt, Jr. Assistant Treasurer; Assistant
Secretary; Director None
The principal business address of Ms. Bauer is One South Wacker
Drive, Chicago, IL 60606; that of Mr. Williams is Two Righter
Parkway, Wilmington, DE 19803; and that of the other officers is
600 Atlantic Avenue, Boston, MA 02210.
Item 30. Location of Accounts and Records.
Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment
Company Act of 1940 at its principal executive offices at One
South Wacker Drive, Chicago, Illinois 60606. Certain records,
including records relating to Registrant's shareholders and the
physical possession of its securities, may be maintained pursuant
to Rule 31a-3 at the main office of Registrant's transfer agent or
custodian.
Item 31. Management Services.
None.
Item 32. Undertakings.
If requested to do so by the holders of at least 10% of the
Trust's outstanding shares, the Trust will call a special meeting
for the purpose of voting upon the question of removal of a
trustee or trustees and will assist in the communications with
other shareholders as if the Trust were subject to Section 16(c)
of the Investment Company Act of 1940.
Since the information called for by Item 5A is contained in the
latest annual reports to shareholders, Registrant undertakes with
respect to each series to furnish each person to whom a prospectus
is delivered with a copy of the latest annual report to
shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it
meets all of the requirements for effectiveness of this registration
statement pursuant to Rule 485(b) under the Securities Act of 1933 and
has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Chicago and State of Illinois on the 25th day of June,
1996.
STEIN ROE INVESTMENT TRUST
By TIMOTHY K. ARMOUR
Timothy K. Armour, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated:
Signature Title Date
- ------------------------ --------------------- ----------------
TIMOTHY K. ARMOUR President and Trustee June 25, 1996
Timothy K. Armour
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice-President June 25, 1996
Gary A. Anetsberger
Principal Financial Officer
SHARON R. ROBERTSON Controller June 25, 1996
Sharon R. Robertson
Principal Accounting Officer
KENNETH L. BLOCK Trustee June 25, 1996
Kenneth L. Block
WILLIAM W. BOYD Trustee June 25, 1996
William W. Boyd
__________________ Trustee _______________
Lindsay Cook
FRANCIS W. MORLEY Trustee June 25, 1996
Francis W. Morley
CHARLES R. NELSON Trustee June 25, 1996
Charles R. Nelson
GORDON R. WORLEY Trustee June 25, 1996
Gordon R. Worley
___________________ Trustee ______________
Douglas A. Hacker
___________________ Trustee ______________
Thomas C. Theobald
<PAGE>
STEIN ROE INVESTMENT TRUST
INDEX TO EXHIBITS FILED WITH THIS AMENDMENT
Exhibit
Number Description
- ------- ------------
2 Bylaws
5(a) Management agreement
5(c) Expense undertaking relating to Stein Roe Special Fund
6 Underwriting agreement
9(b) Bookkeeping and accounting agreement
9(c) Administrative agreement
10(a) Opinions and consents of Ropes & Gray
10(b) Opinions and consents of Bell, Boyd & Lloyd
11(a) Consent of Arthur Andersen, LLP
11(b) Morningstar consent
16 Schedules for computation of performance quotations
17(a) Financial Data Schedule for Stein Roe Growth & Income
Fund
17(b) Financial Data Schedule for Stein Roe Balanced Fund
17(c) Financial Data Schedule for Stein Roe Growth Stock Fund
17(d) Financial Data Schedule for Stein Roe Capital
Opportunities Fund
17(e) Financial Data Schedule for Stein Roe Special Fund
17(f) Financial Data Schedule for Stein Roe International Fund
17(g) Financial Data Schedule for Stein Roe Young Investor
Fund
17(h) Financial Data Schedule for Stein Roe Special Venture Fund
19(c) Automatic Redemption Services Application
EXHIBIT 2
<PAGE>
STEINROE INVESTMENT TRUST
BY-LAWS
<PAGE>
ARTICLE I. AGREEMENT AND DECLARATION OF TRUST, LOCATION OF
OFFICES AND SEAL
Section 1.01. Agreement and Declaration of Trust........1
Section 1.02. Principal Office..........................1
Section 1.03. Seal......................................1
ARTICLE II. BOARD OF TRUSTEES
Section 2.01. Number and Term of Office.................1
Section 2.02. Power to Declare Dividends................1
Section 2.03. Annual and Regular Meetings...............2
Section 2.04. Special Meetings..........................2
Section 2.05. Notice....................................2
Section 2.06. Waiver of Notice..........................3
Section 2.07. Quorum and Voting.........................3
Section 2.08. Action Without a Meeting..................3
ARTICLE III. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted...........................3
Section 3.02. Powers of the Executive Committee.........3
Section 3.03. Other Committees of the Board of Trustees.3
Section 3.04. Proceedings, Quorum and Manner of Acting..3
Section 3.05. Other Committees..........................4
Section 3.06. Action Without a Meeting..................4
Section 3.07. Waiver of Notice..........................4
ARTICLE IV. OFFICERS
Section 4.01. General...................................4
Section 4.02. Election, Term of Office and
Qualifications............................4
Section 4.03. Resignation...............................5
Section 4.04. Removal...................................5
Section 4.05. Vacancies and Newly Created Offices.......5
Section 4.06. Chairman of the Board.....................5
Section 4.07. President.................................5
Section 4.08. Executive Vice-Presidents and Vice-
Presidents................................5
Section 4.09. Senior Vice-President.....................5
Section 4.10. Treasurer and Assistant Treasurers........6
Section 4.11. Secretary and Assistant Secretaries.......6
Section 4.12. Controller and Assistant Controllers......6
Section 4.13. Subordinate Officers......................6
Section 4.14. Remuneration..............................6
Section 4.15. Surety Bonds..............................6
ARTICLE V. CUSTODY OF SECURITIES
Section 5.01. Employment of a Custodian.................7
Section 5.02. Provisions of Custodian Contract..........7
Section 5.03. Action upon Termination of Custodian
Contract..................................8
ARTICLE VI. EXECUTION OF INSTRUMENTS, RIGHTS AS SECURITY
HOLDER
Section 6.01. General...................................8
Section 6.02. Checks, Notes, Drafts, Etc................8
Section 6.03. Rights as Security Holder.................8
ARTICLE VII. SHARES OF BENEFICIAL INTEREST
Section 7.01. Certificates..............................9
Section 7.02. Uncertificated Shares.....................9
Section 7.03. Transfers of Shares.......................9
Section 7.04. Registered Shareholders...................9
Section 7.05. Transfer Agents and Registrars............9
Section 7.06. Fixing of Record Date....................10
Section 7.07. Lost, Stolen, or Destroyed Certificates..10
Section 7.08. Resumption of Issuance of Certificates/
Cancellation of Certificates.............10
ARTICLE VIII. FISCAL YEAR, ACCOUNTANT
Section 8.01. Fiscal Year..............................10
Section 8.02. Accountants..............................11
ARTICLE IX. AMENDMENTS
Section 9.01. General..................................11
Section 9.02. By Shareholders Only.....................11
ARTICLE X. MISCELLANEOUS
Section 10.01. Restrictions and Limitations............11
<PAGE> 1
STEINROE INVESTMENT TRUST
BY-LAWS
(By-Laws Adopted by Board of Trustees on January 8, 1987
as amended through October 24, 1990)
ARTICLE I. AGREEMENT AND DECLARATION OF TRUST,
LOCATION OF OFFICES AND SEAL
Section 1.01. Agreement and Declaration of Trust.
These By-Laws shall be subject to the Agreement and
Declaration of Trust as now in effect or hereinafter amended
("Declaration of Trust") of SteinRoe Tax-Exempt Income Trust,
a Massachusetts business trust established by the Declaration
of Trust (the "Trust").
Section 1.02. Principal Office. A principal office of
the Trust shall be located in Boston, Massachusetts. The
Trust may also maintain a principal office in the City of
Chicago, State of Illinois. The Trust may, in addition,
establish and maintain such other offices and places of
business as the Board of Trustees may from time to time
determine.
Section 1.03. Seal. The seal of the Trust shall be
circular in form and shall bear the name of the Trust, the
word "Massachusetts," and the year of its organization. The
form of the seal shall be subject to alteration by the Board
of Trustees and the seal may be used by causing it or a
facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or Trustee of the Trust shall have
authority to affix the seal of the Trust to any document
requiring the same. Unless otherwise required by the Board
of Trustees, the seal shall not be necessary to be placed on,
and its absence shall not impair the validity of, any
document, instrument or other paper executed and delivered by
or on behalf of the Trust.
ARTICLE II. BOARD OF TRUSTEES
Section 2.01. Number and Term of Office. The Board of
Trustees shall initially consist of the initial sole Trustee,
which number may be increased or subsequently decreased by a
resolution of a majority of the entire Board of Trustees,
provided that the number of Trustees shall not be less than
one nor more than twenty-one. Each Trustee (whenever
selected) shall hold office until the next meeting of
shareholders and until his successor is elected and qualified
or until his earlier death, resignation, or removal. The
initial Trustee shall be the person designated in the
Declaration of Trust.
Section 2.02. Power to Declare Dividends.
(a) The Board of Trustees, from time to time as it may
deem advisable, may declare and pay dividends to the
shareholders of any series of the Trust in cash or other
property of that series, out of any source available to that
series for dividends, according to the respective rights and
interests of shareholders of that series and in accordance
with the applicable provisions of the Declaration of Trust.
(b) The Board of Trustees may prescribe from time to
time that dividends declared on shares of a series may be
payable at the election of any of the shareholders of that
series (exercisable before the declaration of the
<PAGE> 2
dividend), either in cash or in shares of that series;
provided that the net asset value of the shares received by a
shareholder electing to receive dividends in shares
(determined as of such time as the Board of Trustees shall
have prescribed in accordance with the Declaration of Trust)
shall not exceed the full amount of cash to which the
shareholder would be entitled if he elected to receive cash.
(c) The Board of Trustees shall cause any dividend
payment to shareholders of a series to be accompanied by a
written statement if wholly or partly from any source other
than:
(i) such series' accumulated undistributed net income
[determined in accordance with generally accepted
accounting principles and the rules and regulations
then in effect of the Securities and Exchange
Commission or any other governmental body having
similar jurisdiction over the Trust (the "SEC")]
and not including profits or losses realized upon
the sale of securities or other properties of the
series; or
(ii) the series' net income so determined for the
current or preceding fiscal year.
Such statement shall adequately disclose the source or
sources of such payment and the basis of calculation and
shall be in such form as the SEC may prescribe.
Section 2.03. Annual and Regular Meetings. Annual and
regular meetings of the Board of Trustees may be held without
call or notice and at such places at such times as the Board
of Trustees may from time to time determine provided that
notice of the first regular meeting following any such
determination shall be given to absent Trustees. Members of
the Board of Trustees or any committee designated thereby may
participate in a meeting of such Board or committee by means
of a conference telephone or other communications equipment,
by means of which all persons participating in the meeting
can hear each other at the same time. Participation by such
means shall constitute presence in person at a meeting;
provided, however, that the Board of Trustees shall not enter
into, renew, or perform any contract or agreement, written or
oral, whereby a person undertakes regularly to serve or act
as investment adviser with respect to any series of the Trust
unless the terms of such contract or agreement and any
renewal thereof have been approved by the vote of a majority
of Trustees who are not parties to such contract or agreement
or interested persons of any such party, which votes shall be
cast at a meeting called for the purpose of voting on such
approval at which such persons are physically present.
Section 2.04. Special Meetings. Special meetings of
the Board of Trustees shall be held whenever called and at
such place and time determined by the President, Executive
Vice-President or Secretary (or, in the absence or disability
of the President, Executive Vice-President and Secretary, by
any Vice-President), or a majority of the Trustees then in
office, at the time and place specified in the respective
notices or waivers of notice of such meetings.
Section 2.05. Notice. If notice of a meeting of the
Board of Trustees is required or desired to be given, notice
stating the time and place shall be mailed to each Trustee at
his residence or regular place of business at least five days
before the day on which the meeting is to be held or caused
to be delivered to him personally or to be transmitted to him
by telephone, telegraph, cable, or wireless at least one day
before the meeting.
<PAGE> 3
Section 2.06. Waiver of Notice. No notice required or
desired to be given of any meeting need be given to any
Trustee who attends such meeting in person or to any Trustee
who waives notice of such meeting in writing (which waiver
shall be filed with records of such meeting), whether before
or after the time of the meeting.
Section 2.07. Quorum and Voting. At all meetings of
the Board of Trustees, the presence of one-third of the
number of Trustees then in office shall constitute a quorum
for the transaction of business; provided, however, a quorum
shall not be less than the lesser of two Trustees or 100% of
all Trustees then in office. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting
without further notice, from time to time, until a quorum
shall be present. The action of a majority of the Trustees
present at a meeting at which a quorum is present shall be
the action of the Board of Trustees, unless the concurrence
of a greater proportion is required for such action by law,
by the Declaration of Trust, or by these By- Laws.
Section 2.08. Action Without a Meeting. Any action
required or permitted to be taken at any meeting of the Board
of Trustees may be taken without a meeting, if written
consents thereto are signed by a majority of the members of
the Board, unless the consent of a larger number is required
pursuant to applicable law in which case the consents of such
number shall be required, and such written consents are filed
with the minutes of proceedings of the Board of Trustees.
ARTICLE III. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. By resolution adopted
by the Board of Trustees, the Board may designate one or more
committees, including an Executive Committee, each of which
shall consist of at least two Trustees. Each member of a
committee shall be a Trustee and shall hold office during the
pleasure of the Board.
Section 3.02. Powers of the Executive Committee.
Unless otherwise provided by resolution of the Board of
Trustees, the Executive Committee shall have and may exercise
all powers of the Board of Trustees in the management of the
business and affairs of the Trust that may lawfully be
exercised by an executive committee, except the power to
recommend to shareholders any matter requiring shareholder
approval, amend the Declaration of Trust or By-Laws, or
approve any merger or share exchange that does not require
shareholder approval.
Section 3.03. Other Committees of the Board of
Trustees. To the extent provided by resolution of the Board,
other committees of the Board shall have and may exercise any
of the powers that may lawfully be granted to the Executive
Committee.
Section 3.04. Proceedings, Quorum and Manner of Acting.
In the absence of appropriate resolution of the Board of
Trustees, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it
shall deem proper and desirable, provided that the quorum
shall not be less than two Trustees except that, in the case
of a committee (other than the Executive Committee)
consisting of two Trustees, one Trustee shall constitute a
quorum unless the Board by resolution specifies that a quorum
for that committee shall consist of two Trustees. In the
absence of any member of any such committee, the members
thereof present at any meeting, whether or not
<PAGE> 4
they constitute a quorum, may appoint a member of the Board
of Trustees to act in the place of such absent member.
Section 3.05. Other Committees. The Board of Trustees
may appoint other committees, each consisting of one or more
persons, who need not be Trustees. Each such committee shall
have such powers and perform such duties as may be assigned
to it from time to time by the Board of Trustees, but shall
not exercise any power which may lawfully be exercised only
by the Board of Trustees or a committee thereof.
Section 3.06. Action Without a Meeting. Any action
required or permitted to be taken at any meeting of any
committee may be taken without a meeting, if written consents
thereto are signed by a majority of the members of the
committee unless the consent of a larger number is required
pursuant to applicable law in which case the consents of such
number shall be required, and such written consents are filed
with the minutes of proceedings of the Board of Trustees or
of the committee.
Section 3.07. Waiver of Notice. Whenever any notice of
the time, place or purpose of any meeting of any committee is
required to be given under the provisions of any applicable
law or under the provisions of the Declaration of Trust or
these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice and filed with the
records of the meeting, whether before or after the holding
of such meeting, or actual attendance at the meeting in
person, shall be deemed equivalent to the giving of such
notice to such persons.
ARTICLE IV. OFFICERS
Section 4.01. General. The officers of the Trust shall
be a President, a Secretary, a Senior Vice-President, a
Treasurer and a Controller, and may include one or more
Executive Vice-Presidents, Vice-Presidents, Assistant
Secretaries, Assistant Treasurers or Assistant Controllers
and such other officers as may be appointed in accordance
with the provisions of Section 4.13 hereof. The Board of
Trustees may elect, but shall not be required to elect, a
Chairman of the Board.
Section 4.02. Election, Term of Office and
Qualifications. The officers of the Trust (except those
appointed pursuant to Section 4.13 hereof) shall be chosen by
the Board of Trustees at its first meeting or such subsequent
meetings as shall be held prior to its first annual meeting
and thereafter annually. If any officers are not chosen at
any annual meeting, such officers may be chosen at any
subsequent regular or special meeting of the Board. Except
as provided in Sections 4.03, 4.04 and 4.05 hereof, each
officer chosen by the Board of Trustees shall hold office
until the next annual meeting of the Board of Trustees and
until his successor shall have been chosen and qualified or
until his earlier death. Any person may hold one or more
offices of the Trust except the offices of President and
Vice-President, but no officer shall execute, acknowledge, or
verify an instrument in more than one capacity, if such
instrument is required by law, by the Declaration of Trust,
or by these By-Laws to be executed, acknowledged or verified
by two or more officers. The Chairman of the Board, if any,
shall be chosen from among the Trustees of the Trust and may
hold such office only so long as he continues to be a
Trustee. No other officer need be a Trustee.
<PAGE> 5
Section 4.03. Resignation. Any officer may resign his
office at any time by delivering a written resignation to the
Board of Trustees, the President, the Secretary, or any
Assistant Secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery.
Section 4.04. Removal. Any officer may be removed from
office, whenever in the Board's judgment the best interest of
the Trust will be served thereby, by the vote of a majority
of the Board of Trustees given at any regular or special
meeting. In addition, any officer or agent appointed in
accordance with the provisions of Section 4.13 hereof may be
removed, either with or without cause, by any officer upon
whom such power of removal shall have been conferred by the
Board of Trustees.
Section 4.05. Vacancies and Newly Created Offices. If
any vacancy shall occur in any office by reason of death,
resignation, removal, disqualification, or other cause, or if
any new office shall be created, such vacancy or newly
created office may be filled by the Board of Trustees at any
regular or special meeting or, in the case of any office
created pursuant to Section 4.13 hereof, by any officer upon
whom such power shall have been conferred by the Board of
Trustees. An officer chosen by the Board of Trustees to fill
a vacancy or a newly created office shall serve until the
next annual meeting of the Board of Trustees and until his
successor shall have been chosen and qualified or until his
earlier death, resignation or removal.
Section 4.06. Chairman of the Board. In the absence or
disability of the President, the Chairman of the Board, if
there be such an officer, shall preside at all shareholders'
meetings and at all meetings of the Board of Trustees. He
shall have such other powers and perform such other duties as
may be assigned to him from time to time by the Board of
Trustees.
Section 4.07. President. The President shall be the
chief executive officer and shall preside at all
shareholders' meetings and at all meetings of the Board of
Trustees. Subject to the supervision of the Board of
Trustees, he shall have the general charge of the business,
affairs and property of the Trust and general supervision
over its other officers, employees and agents.
Section 4.08. Executive Vice-Presidents and Vice-
Presidents. The Board of Trustees may from time to time
elect one or more Executive Vice-Presidents and one or more
Vice-Presidents, who shall have such powers and perform such
duties as from time to time may be assigned to them by the
Board of Trustees or the President. At the request of the
President, the Executive Vice-President, and if no Executive
Vice-President is present or able, the Vice-President may
perform all the duties of the President and, when so acting,
shall have all the powers of and be subject to all the
restrictions upon the President. If there are two or more
Executive Vice-Presidents or Vice-Presidents, the earliest
elected to the more senior office present and able shall
perform the duties of the President in his absence or
disability.
Section 4.09. Senior Vice-President. The Senior Vice-
President shall be the principal financial officer of the
Trust and shall have general charge of the finances and books
of account of the Trust. Except as otherwise provided by the
Board of Trustees, he shall have general supervision of the
funds and property of the Trust and of the performance by the
Custodian of its duties with respect thereto. He shall
render to the Board of Trustees, whenever directed by the
Board, an account of the financial condition of the Trust and
of all his transactions as Senior Vice-President; and as soon
as possible after the close of each fiscal year he shall make
and submit to the Board of Trustees a like report for such
fiscal year. He shall perform all the acts
<PAGE> 6
incidental to the office of Senior Vice-President, subject to
the control of the Board of Trustees. At the request of any
Executive Vice-President, or if no Executive Vice-President
is present or able, the Senior Vice-President may perform all
of the duties of the Executive Vice-President (except to the
extent that such duties have otherwise been delegated by or
pursuant to these By-Laws) and, when so acting, shall have
all the powers of and be subject to all the restrictions upon
the Executive Vice-President.
Section 4.10. Treasurer and Assistant Treasurers. The
Treasurer and any Assistant Treasurer may perform such duties
of the Senior Vice-President as the Senior Vice-President or
the Board of Trustees may assign, and, in the absence of the
Senior Vice-President, may perform all the duties of the
Senior Vice-President.
Section 4.11. Secretary and Assistant Secretaries. The
Secretary shall attend to the giving and serving of all
notices of the Trust and shall record all proceedings of the
meetings of the shareholders, Trustees, the Executive
Committee and other committees, in a book to be kept for that
purpose. He shall keep in safe custody the seal of the
Trust, and shall have charge of the records of the Trust,
including the share books and such other books and papers as
the Board of Trustees may direct and such books, reports,
certificates and other documents required by law to be kept,
all of which shall, at all reasonable times, be open to
inspection by any Trustee. He shall perform all the acts
incidental to the office of Secretary, subject to the control
of the Board of Trustees.
Any Assistant Secretary may perform such duties of the
Secretary as the Secretary or the Board of Trustees may
assign, and, in the absence of the Secretary, he may perform
all the duties of the Secretary.
Section 4.12. Controller and Assistant Controllers.
The Controller shall be the chief accounting officer of the
Trust. He shall direct the preparation and maintenance, on a
current basis, of such accounting books, records and reports
as may be necessary to permit the directors, officers and
executives of the Trust or as may be required by law. He
shall perform all the acts incidental to the office of
Controller, subject to the control of the Board of Trustees,
the Executive Vice-President or the Senior Vice-President.
Any Assistant Controller may perform such duties of the
Controller as the Controller or the Board of Trustees may
assign, of the Controller.
Section 4.13. Subordinate Officers. The Board of
Trustees from time to time may appoint such other officers or
agents as it may deem advisable, each of whom shall have such
title, hold office for such period, have such authority and
perform such duties as the Board of Trustees may determine.
The Board of Trustees from time to time may delegate to one
or more officers or agents the power to appoint any such
subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 4.14. Remuneration. The salaries, if any, or
other compensation of the officers of the Trust shall be
fixed from time to time by resolution of the Board of
Trustees, except that the Board of Trustees may by resolution
delegate to any person or group of persons the power to fix
the salaries or other compensation of any subordinate
officers or agents appointed in accordance with the
provisions of Section 4.13 hereof.
Section 4.15. Surety Bonds. The Board of Trustees may
require any officer or agent of the Trust to execute a bond
to the Trust [including, without
<PAGE> 7
limitation, any bond required by the Investment Company Act
of 1940, or any rule or regulation thereunder, all as now in
effect or as hereafter amended or added (the "1940 Act") and
the rules and regulations of the SEC] in such sum and with
such surety or sureties as the Board of Trustees may
determine, conditioned upon the faithful performance of his
duties to the Trust, including responsibility for negligence
and for the accounting of any of the Trust's property, funds,
or securities that may come into his hands.
ARTICLE V. CUSTODY OF SECURITIES
Section 5.01. Employment of a Custodian. The Trust
shall place and at all times maintain in the custody of a
Custodian (including any sub-custodian for the Custodian) all
securities owned by the Trust and cash representing the
proceeds from sales of securities owned by the Trust and of
capital stock or other units of beneficial interest issued to
the Trust, payments of principal upon securities owned by the
Trust, or capital distribution in respect to capital stock or
other units of beneficial interest owned by the Trust,
pursuant to a written contract with such Custodian. The
Custodian shall be a bank or trust company having not less
than $2,000,000 aggregate capital, surplus and undivided
profits (as shown in its last published report).
Section 5.02. Provisions of Custodian Contract. The
Custodian contract shall be upon such terms and conditions
and may provide for such compensation as the Board of
Trustees deems necessary or appropriate, provided such
contract shall further provide that the Custodian shall
deliver securities owned by the Trust only upon sale of such
securities for the account of the Trust and receipt of
payment therefor by the Custodian or when such securities may
be called, redeemed, retired, or otherwise become payable.
Such limitations shall not prevent:
(a) the delivery of securities for examination to the
broker selling the same in accord with the "street delivery"
custom whereby such securities are delivered to such broker
in exchange for a delivery receipt exchanged on the same day
for an uncertified check of such broker to be presented on
the same day for certification;
(b) the delivery of securities of an issuer in exchange
for or for conversion into other securities alone or cash and
other securities, pursuant to any plan of merger,
consolidation, reorganization, recapitalization, or
readjustment of the securities of such issuer;
(c) the conversion by the Custodian of securities owned
by the Trust, pursuant to the provisions of such securities,
into other securities;
(d) the surrender by the Custodian of warrants, rights,
or similar securities owned by the Trust in the exercise of
such warrants, rights, or similar securities, or the
surrender of interim receipts or temporary securities for
definitive securities;
(e) the delivery of securities as collateral on
borrowing effected by the Trust; or
(f) the delivery of securities owned by the Trust as a
redemption in kind of securities issued by the Trust.
<PAGE> 8
The Custodian shall deliver funds of the Trust for the
purchase of securities for the portfolio of the Trust only
upon the delivery of such securities to the Custodian, but
such limitation shall not prevent the release of funds by the
Custodian for redemption of shares issued by the Trust, for
payment of interest, dividend disbursements, taxes or
management fees, for payments in connection with the
conversion, exchange or surrender of securities owned by the
Trust as set forth in subparagraphs (b), (c) and (d) above or
for operating expenses of the Trust.
The term "security" shall be broadly construed and shall
include, without limitation, the various types of securities
set forth in Section 3(a)(10) of the Securities Exchange Act
of 1934.
Section 5.03. Action upon Termination of Custodian
Contract. The contract of employment of the Custodian may be
terminated by either party on 60 days' written notice to the
other party. Upon termination of the Custodian contract,
resignation of the Custodian, or inability of the Custodian
to continue to serve, the Board of Trustees shall use its
best efforts to obtain a successor custodian. If a successor
custodian is found, the Trust shall require the retiring
Custodian to deliver the cash and securities owned by the
Trust directly to the successor custodian. In the event that
no successor custodian which has the required qualifications
and is willing to serve can be found, the Board of Trustees
shall call a special meeting of the shareholders to submit to
the shareholders, before delivery of the cash and securities
owned by the Trust to other than a successor custodian, the
question of whether the Trust shall function without a
custodian or shall be liquidated.
ARTICLE VI. EXECUTION OF INSTRUMENTS, RIGHTS AS
SECURITY HOLDER
Section 6.01. General. All deeds, documents,
transfers, contracts, agreements and other instruments
requiring execution by the Trust shall be signed by the
President, the Executive Vice-President, the Senior Vice-
President, the Controller, the Secretary, or the Treasurer,
or as the Board of Trustees may otherwise, from time to time,
authorize. Any such authorization may be general or confined
to specific instances.
Section 6.02. Checks, Notes, Drafts, Etc. Except as
otherwise authorized by the Board of Trustees, all checks and
drafts for the payment of money shall be signed in the name
of the Trust by the Custodian, and all requisitions or orders
for the payment of money by the Custodian or for the issue of
checks and drafts therefor, all promissory notes, all
assignments of shares or securities standing in the name of
the Trust and all requisitions or orders for the assignment
of shares or securities standing in the name of the Custodian
or its nominee, or for the execution of powers to transfer
the same, shall be signed in the name of the Trust by not
less than two of its officers. Promissory notes, checks, or
drafts payable to the Trust may be endorsed only to the order
of the Custodian or its agent.
Section 6.03. Rights as Security Holder. Unless
otherwise ordered by the Board of Trustees, any officer shall
have full power and authority on behalf of the Trust to (1)
exercise (or waive) any and all rights, powers and privileges
incident to the ownership of any securities or other
obligations which may be owned by the Trust; and (2) attend
and to act and to vote, or in the name of the Trust to
execute proxies to vote, at any meeting of security holders
of any company in which the Trust may hold securities. At
any such meeting, any officer shall possess and may exercise
(in person or by proxy)
<PAGE> 9
any and all rights, powers and privileges incident to the
ownership of such securities.
ARTICLE VII. SHARES OF BENEFICIAL INTEREST
Section 7.01. Certificates. The Trust shall not issue
share certificates after October 31, 1989. Any certificate
issued by the Trust (or a predecessor to the Trust) to a
shareholder prior to November 1, 1989 shall continue to
represent and certify the number, kind, series and class of
full shares owned by him in the Trust. Each certificate is
valid if signed by the President or a Vice-President and
countersigned by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and sealed with the
seal. The signatures may be either manual or facsimile
signatures and the seal may be either facsimile or any other
form of seal. In case any officer who has signed any
certificate ceases to be an officer of the Trust before the
certificate was issued, the certificate nevertheless has the
same effect as if the officer had not ceased to be such
officer as of the date of its issue.
Section 7.02. Uncertificated Shares. The Trust's share
ledger shall be deemed to represent and certify the number of
full and/or fractional shares of a series owned of record by
a shareholder in those instances where a certificate for such
shares has not been issued.
Section 7.03. Transfers of Shares. Shares of any
series of the Trust shall be transferable on the books of the
Trust at the request of the record holder thereof in person
or by a duly authorized attorney, upon presentation to the
Trust or its transfer agent of a duly executed assignment or
authority to transfer, or proper evidence of succession, and,
if the shares are represented by a certificate, a duly
endorsed certificate or certificates of shares surrendered
for cancellation, and with such proof of the authenticity of
the signatures as the Trust or its transfer agent may
reasonably require, provided, whether or not such shares are
represented by any certificate or certificates of shares,
that:
(a) the Trust has no duty to inquire into adverse claims
or has discharged any such duty;
(b) any applicable law relating to the collection of
taxes has been complied with; and
(c) the transfer is in fact rightful or is to a bona
fide purchaser.
The transfer shall be recorded on the books of the Trust
and the old certificates, if any, shall be cancelled.
Section 7.04. Registered Shareholders. The Trust shall
be entitled to treat the holder of record of shares of each
series as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Commonwealth of
Massachusetts.
Section 7.05. Transfer Agents and Registrars. The
Board of Trustees may, from time to time, appoint or remove
transfer agents and/or registrars of transfers of shares of
the Trust, and it may appoint the same person as both
<PAGE> 10
transfer agent and registrar. Upon any such appointment
being made, all certificates representing shares thereafter
issued shall be countersigned by one of such transfer agents
or by one of such registrars of transfers or by both and
shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one
countersignature by such person shall be required.
Section 7.06. Fixing of Record Date. The Board of
Trustees may fix in advance a date as a record date for the
determination of the shareholders of any series entitled to
notice of or to vote at any meeting of such shareholders or
any adjournment thereof, or to express consent to Trust
action in writing without a meeting, or to receive payment of
any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change,
conversion, or exchange of shares of such series, or for the
purpose of any other lawful action, provided that such record
date shall not be a date more than 60 days, and, in the case
of a meeting of shareholders, not less than 10 days, prior to
the date on which the particular action requiring such
determination of shareholders of such series is to be taken.
In such case only such shareholders as shall be shareholders
of record of such series on the record date so fixed shall be
entitled to such notice of, and to vote at, such meeting or
adjournment, or to give such consent, or to receive payment
of such dividend or other distribution, or to receive such
allotment of rights, or to exercise such rights, or to take
such other action, as the case may be, notwithstanding any
transfer or redemption of any shares of such series on the
books of the Trust after any such record date. If no record
date has been fixed for the determination of shareholders,
the record date for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day on which notice
of the meeting is mailed, which shall not be more than 60
days before the meeting, or, if notice is waived by all
shareholders entitled thereto, at the close of business on
the tenth day before the day on which the meeting is held.
Section 7.07. Lost, Stolen, or Destroyed Certificates.
Before transferring on the books of the Trust shares
represented by a certificate that is alleged to have been
lost, stolen, or destroyed, the Board of Trustees or any
officer authorized by the Board may, in its or his
discretion, require the owner of the lost, stolen, or
destroyed certificate (or his legal representative) to give
the Trust a bond or other indemnity, in such form and in such
amount as of the Board or any such officer may direct and
with such surety or sureties as may be satisfactory to the
Board or any such officer, sufficient to indemnify the Trust
against any claim that may be made against it on account of
the alleged loss, theft, or destruction of any such
certificate.
Section 7.08. Resumption of Issuance of
Certificates/Cancellation of Certificates. The Trustees may
at any time resume the issuance of share certificates. The
Trustees may, by written notice to each shareholder, require
the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not
affect the ownership of shares in the Trust.
ARTICLE VIII. FISCAL YEAR, ACCOUNTANT
Section 8.01. Fiscal Year. The fiscal year of each
series of shares of the Trust shall be established by the
Board of Trustees.
<PAGE> 11
Section 8.02. Accountants. For each series of the
shares of the Trust, the Trust shall employ an independent
public accountant or firm of independent public accountants
as the Accountant for such series to examine and certify or
issue its report on the financial statements of that series
of the Trust. Each Accountant's certificates and reports
shall be addressed both to the Board of Trustees and to the
shareholders of the applicable series.
ARTICLE IX. AMENDMENTS
Section 9.01. General. Except as provided in Section
9.02 hereof, all By-Laws of the Trust, whether adopted by the
Board of Trustees or the shareholders, shall be subject to
amendment, alteration, or repeal, and new By-Laws may be
made, by the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of
the Trust entitled to vote at any meeting, the notice or
waiver of notice of which shall have specified or summarized
the proposed amendment, alteration, repeal, or new By-Law; or
(b) the Trustees, at any regular or special meeting.
Section 9.02. By Shareholders Only.
(a) No amendment of any section of these By-Laws shall
be made except by the shareholders of the Trust, if the By-
Laws provide that such section may not be amended, altered or
repealed except by the shareholders.
(b) From and after the issue of any shares of the Trust
to the public, no amendment of this Article IX or Article X
shall be made except by the shareholders of the Trust.
ARTICLE X. MISCELLANEOUS
Section 10.01. Restrictions and Limitations.
(a) Except as hereinafter provided, no officer or
Trustee of the Trust, no officer, director, or stockholder
(or partner of a stockholder) of the investment adviser of
the Trust (as that term is defined in the 1940 Act) or of any
underwriter of the Trust, and no investment adviser or
underwriter of the Trust shall take long or short positions
in the securities issued by the Trust. The foregoing
provision shall not prevent the purchase from the Trust of
shares of any series issued by the Trust by any person at the
price available to shareholders of the Trust generally at the
time of such purchase, or as described in the current
Prospectus of the Trust, or prior to commencement of the
public offering of shares of the Trust, at the net asset
value of such shares.
(b) The Trust shall not lend assets of the Trust to any
officer or Trustee of the Trust or to any officer, director,
or stockholder (or partner of a stockholder) of, or person
financially interested in, the investment adviser or any
underwriter of the Trust, or to the investment adviser of the
Trust or to any underwriter of the Trust.
<PAGE> 12
(c) The Trust shall not restrict the transferability or
negotiability of the shares of the Trust, except in
conformity with the statements with respect thereto contained
in the Trust's Registration Statement, and not in
contravention of such rules and regulations as the SEC may
prescribe.
(d) The Trust shall not permit any officer or Trustee of
the Trust, or any officer, director, or stockholder (or
partner of a stockholder) of the investment adviser or any
underwriter of the Trust to deal for or on behalf of the
Trust with himself as principal or agent, or with any
partnership, association, or trust in which he has a
financial interest; provided that the foregoing provisions
shall not prevent (1) officers and Trustees of the Trust from
buying, holding, redeeming, or selling shares in the Trust,
or from being officers, directors, or stockholders (or
partners of a stockholder) of or otherwise financially
interested in the investment adviser or any underwriter of
the Trust; (2) purchases or sales of securities or other
property by the Trust from or to an affiliated person or to
the investment adviser or any underwriter of the Trust, if
such transactions are not prohibited by the 1940 Act or have
been exempted by SEC order from the prohibitions of the 1940
Act; (3) purchases of investments for the portfolio of the
Trust through a securities dealer who is, or one or more of
whose partners, stockholders, officers, or directors is, an
officer or Trustee of the Trust, if such transactions are
handled in the capacity of broker only and commissions
charged do not exceed customary brokerage charges for such
services; (4) employment of legal counsel, registrar,
transfer agent, dividend disbursing agent, or custodian who
is, or has a partner, stockholder, officer, or director who
is, an officer or Trustee of the Trust, if only customary
fees are charged for services to the Trust; (5) sharing
statistical, research, legal and management expenses and
office hire and expenses with any other investment company in
which an officer or Trustee of the Trust is an officer,
trustee, or director or otherwise financially interested.
END OF BY-LAWS
<PAGE>
C E R T I F I C A T E
I, Jilaine Hummel Bauer, hereby certify that I am the
duly elected and acting Secretary of SteinRoe Investment Trust
(the "Trust"), a business trust organized under the laws of
the Commonwealth of Massachusetts, that the following is a
true and correct copy of a resolution adopted by the Board of
Trustees of said Trust at a meeting held on February 3, 1993
in accordance with the By-Laws, and that such resolution is
still in full force and effect.
RESOLVED that Section 2.01 of the By-Laws of the
Trust is amended and restated as follows:
Section 2.01. Number and Term of Office. The Board
of Trustees shall initially consist of the initial
sole Trustee, which number may be increased or
subsequently decreased by a resolution of a
majority of the entire Board of Trustees, provided
that the number of Trustees shall not be less than
one nor more than twenty-one. Each Trustee
(whenever selected) shall hold office until the
next meeting of shareholders and until his
successor is elected and qualified or until his
earlier death, resignation, or removal. Each
Trustee shall retire on December 31 of the year
during which the Trustee becomes age 72; provided,
however, that any Trustee in office and age 70 or
older on February 3, 1993 shall retire on December
31 of the year during which the Trustee becomes age
77. The initial Trustee shall be the person
designated in the Declaration of Trust.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of said Trust this 4th day of February, 1993.
JILAINE HUMMEL BAUER
Secretary
(SEAL)
<PAGE> 1
EXHIBIT 5(a)
MANAGEMENT AGREEMENT
BETWEEN
STEINROE INVESTMENT TRUST
AND
STEIN ROE & FARNHAM INCORPORATED
STEINROE INVESTMENT TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 ("1940 Act")
as an open-end diversified management investment company
("Trust"), hereby appoints STEIN ROE & FARNHAM INCORPORATED, a
Delaware corporation registered under the Investment Advisers
Act of 1940 as an investment adviser, of Chicago, Illinois
("Manager"), to furnish investment advisory and portfolio
management services with respect to the portion of its assets
represented by the shares of beneficial interest issued in each
series listed in Schedule A hereto, as such schedule may be
amended from time to time (each such series hereinafter referred
to as "Fund"). Trust and Manager hereby agree that:
1. INVESTMENT MANAGEMENT SERVICES. Manager shall manage
the investment operations of Trust and each Fund, subject to the
terms of this Agreement and to the supervision and control of
Trust's Board of Trustees ("Trustees"). Manager agrees to
perform, or arrange for the performance of, the following
services with respect to each Fund:
(a) to obtain and evaluate such information relating to
economies, industries, businesses, securities and
commodities markets, and individual securities, commodities
and indices as it may deem necessary or useful in
discharging its responsibilities hereunder;
(b) to formulate and maintain a continuing investment program in
a manner consistent with and subject to (i) Trust's
agreement and declaration of trust and by-laws; (ii) the
Fund's investment objectives, policies, and restrictions as
set forth in written documents furnished by the Trust to
Manager; (iii) all securities, commodities, and tax laws and
regulations applicable to the Fund and Trust; and (iv) any
other written limits or directions furnished by the Trustees
to Manager;
(c) unless otherwise directed by the Trustees, to determine from
time to time securities, commodities, interests or other
investments to be purchased, sold, retained or lent by the
Fund, and to implement those decisions, including the
selection of entities with or through which such purchases,
sales or loans are to be effected;
(d) to use reasonable efforts to manage the Fund so that it will
qualify as a regulated investment company under subchapter M
of the Internal Revenue Code of 1986, as amended;
(e) to make recommendations as to the manner in which voting
rights, rights to consent to Trust or Fund action, and any
other rights pertaining to Trust or the Fund shall be
exercised;
(f) to make available to Trust promptly upon request all of the
Fund's records and ledgers and any reports or information
reasonably requested by the Trust; and
(g) to the extent required by law, to furnish to regulatory
authorities any information or reports relating to the
services provided pursuant to this Agreement.
<PAGE> 2
Except as otherwise instructed from time to time by the
Trustees, with respect to execution of transactions for Trust on
behalf of a Fund, Manager shall place, or arrange for the
placement of, all orders for purchases, sales, or loans with
issuers, brokers, dealers or other counterparties or agents
selected by Manager. In connection with the selection of all
such parties for the placement of all such orders, Manager shall
attempt to obtain most favorable execution and price, but may
nevertheless in its sole discretion as a secondary factor,
purchase and sell portfolio securities from and to brokers and
dealers who provide Manager with statistical, research and other
information, analysis, advice, and similar services. In
recognition of such services or brokerage services provided by a
broker or dealer, Manager is hereby authorized to pay such
broker or dealer a commission or spread in excess of that which
might be charged by another broker or dealer for the same
transaction if the Manager determines in good faith that the
commission or spread is reasonable in relation to the value of
the services so provided.
Trust hereby authorizes any entity or person associated
with Manager that is a member of a national securities exchange
to effect any transaction on the exchange for the account of a
Fund to the extent permitted by and in accordance with Section
11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder. Trust hereby consents to the retention by such
entity or person of compensation for such transactions in
accordance with Rule 11a-2-2(T)(a)(iv).
Manager may, where it deems to be advisable, aggregate
orders for its other customers together with any securities of
the same type to be sold or purchased for Trust or one or more
Funds in order to obtain best execution or lower brokerage
commissions. In such event, Manager shall allocate the shares
so purchased or sold, as well as the expenses incurred in the
transaction, in a manner it considers to be equitable and fair
and consistent with its fiduciary obligations to Trust, the
Funds, and Manager's other customers.
Manager shall for all purposes be deemed to be an
independent contractor and not an agent of Trust and shall,
unless otherwise expressly provided or authorized, have no
authority to act for or represent Trust in any way.
2. ADMINISTRATIVE SERVICES. Manager shall supervise the
business and affairs of Trust and each Fund and shall provide
such services and facilities as may be required for effective
administration of Trust and Funds as are not provided by
employees or other agents engaged by Trust; provided that
Manager shall not have any obligation to provide under this
Agreement any such services which are the subject of a separate
agreement or arrangement between Trust and Manager, any
affiliate of Manager, or any third party administrator
("Administrative Agreements").
3. USE OF AFFILIATED COMPANIES AND SUBCONTRACTORS. In
connection with the services to be provided by Manager under
this Agreement, Manager may, to the extent it deems appropriate,
and subject to compliance with the requirements of applicable
laws and regulations and upon receipt of written approval of the
Trustees, make use of (i) its affiliated companies and their
directors, trustees, officers, and employees and (ii)
subcontractors selected by Manager, provided that Manager shall
supervise and remain fully responsible for the services of all
such third parties in
<PAGE> 3
accordance with and to the extent provided by this Agreement.
All costs and expenses associated with services provided by any
such third parties shall be borne by Manager or such parties.
4. EXPENSES BORNE BY TRUST. Except to the extent
expressly assumed by Manager herein or under a separate
agreement between Trust and Manager and except to the extent
required by law to be paid by Manager, Manager shall not be
obligated to pay any costs or expenses incidental to the
organization, operations or business of the Trust. Without
limitation, such costs and expenses shall include but not be
limited to:
(a) all charges of depositories, custodians and other agencies
for the safekeeping and servicing of its cash, securities,
and other property;
(b) all charges for equipment or services used for obtaining
price quotations or for communication between Manager or
Trust and the custodian, transfer agent or any other agent
selected by Trust;
(c) all charges for administrative and accounting services
provided to Trust by Manager, or any other provider of such
services;
(d) all charges for services of Trust's independent auditors and
for services to Trust by legal counsel;
(e) all compensation of Trustees, other than those affiliated
with Manager, all expenses incurred in connection with their
services to Trust, and all expenses of meetings of the
Trustees or committees thereof;
(f) all expenses incidental to holding meetings of holders of
units of interest in the Trust ("Unitholders"), including
printing and of supplying each record-date Unitholder with
notice and proxy solicitation material, and all other proxy
solicitation expense;
(g) all expenses of printing of annual or more frequent
revisions of Trust prospectus(es) and of supplying each
then-existing Unitholder with a copy of a revised
prospectus;
(h) all expenses related to preparing and transmitting
certificates representing Trust shares;
(i) all expenses of bond and insurance coverage required by law
or deemed advisable by the Board of Trustees;
(j) all brokers' commissions and other normal charges incident
to the purchase, sale, or lending of portfolio securities;
(k) all taxes and governmental fees payable to Federal, state or
other governmental agencies, domestic or foreign, including
all stamp or other transfer taxes;
(l) all expenses of registering and maintaining the registration
of Trust under the 1940 Act and, to the extent no exemption
is available, expenses of registering Trust's shares under
the 1933 Act, of qualifying and maintaining qualification of
Trust and of Trust's shares for sale under securities laws
of various states or other jurisdictions and of registration
and qualification of Trust under all other laws applicable
to Trust or its business activities;
(m) all interest on indebtedness, if any, incurred by Trust or a
Fund; and
(n) all fees, dues and other expenses incurred by Trust in
connection with membership of Trust in any trade association
or other investment company organization.
<PAGE> 4
5. ALLOCATION OF EXPENSES BORNE BY TRUST. Any expenses
borne by Trust that are attributable solely to the organization,
operation or business of a Fund shall be paid solely out of Fund
assets. Any expense borne by Trust which is not solely
attributable to a Fund, nor solely to any other series of shares
of Trust, shall be apportioned in such manner as Manager
determines is fair and appropriate, or as otherwise specified by
the Board of Trustees.
6. EXPENSES BORNE BY MANAGER. Manager at its own expense
shall furnish all executive and other personnel, office space,
and office facilities required to render the investment
management and administrative services set forth in this
Agreement. Manager shall pay all expenses of establishing,
maintaining, and servicing the accounts of Unitholders in each
Fund listed in Exhibit A. However, Manager shall not be
required to pay or provide any credit for services provided by
Trust's custodian or other agents without additional cost to
Trust.
In the event that Manager pays or assumes any expenses of
Trust or a Fund not required to be paid or assumed by Manager
under this Agreement, Manager shall not be obligated hereby to
pay or assume the same or similar expense in the future;
provided that nothing contained herein shall be deemed to
relieve Manager of any obligation to Trust or a Fund under any
separate agreement or arrangement between the parties.
7. MANAGEMENT FEE. For the services rendered, facilities
provided, and charges assumed and paid by Manager hereunder,
Trust shall pay to Manager out of the assets of each Fund fees
at the annual rate for such Fund as set forth in Schedule B to
this Agreement. For each Fund, the management fee shall accrue
on each calendar day, and shall be payable monthly on the first
business day of the next succeeding calendar month. The daily
fee accrual shall be computed by multiplying the fraction of one
divided by the number of days in the calendar year by the
applicable annual rate of fee, and multiplying this product by
the net assets of the Fund, determined in the manner established
by the Board of Trustees, as of the close of business on the
last preceding business day on which the Fund's net asset value
was determined.
8. RETENTION OF SUB-ADVISER. Subject to obtaining the
initial and periodic approvals required under Section 15 of the
1940 Act, Manager may retain one or more sub-advisers at
Manager's own cost and expense for the purpose of furnishing one
or more of the services described in Section 1 hereof with
respect to Trust or one or more Funds. Retention of a sub-
adviser shall in no way reduce the responsibilities or
obligations of Manager under this Agreement, and Manager shall
be responsible to Trust and its Funds for all acts or omissions
of any sub-adviser in connection with the performance of
Manager's duties hereunder.
9. NON-EXCLUSIVITY. The services of Manager to Trust
hereunder are not to be deemed exclusive and Manager shall be
free to render similar services to others.
10. STANDARD OF CARE. Neither Manager, nor any of its
directors, officers, stockholders, agents or employees shall be
liable to Trust or its Unitholders for any error of judgment,
mistake of law, loss arising out of any investment, or any other
act or omission in the performance by Manager of its duties
under this Agreement,
<PAGE> 5
except for loss or liability resulting from willful misfeasance,
bad faith or gross negligence on Manager's part or from reckless
disregard by Manager of its obligations and duties under this
Agreement.
11. AMENDMENT. This Agreement may not be amended as to
Trust or any Fund without the affirmative votes (a) of a
majority of the Board of Trustees, including a majority of those
Trustees who are not "interested persons" of Trust or of
Manager, voting in person at a meeting called for the purpose of
voting on such approval, and (b) of a "majority of the
outstanding shares" of Trust or, with respect to an amendment
affecting an individual Fund, a "majority of the outstanding
shares" of that Fund. The terms "interested persons" and "vote
of a majority of the outstanding shares" shall be construed in
accordance with their respective definitions in the 1940 Act
and, with respect to the latter term, in accordance with Rule
18f-2 under the 1940 Act.
12. EFFECTIVE DATE AND TERMINATION. This Agreement shall
become effective as to any Fund as of the effective date for
that Fund specified in Schedule A hereto. This Agreement may be
terminated at any time, without payment of any penalty, as to
any Fund by the Board of Trustees of Trust, or by a vote of a
majority of the outstanding shares of that Fund, upon at least
sixty (60) days' written notice to Manager. This Agreement may
be terminated by Manager at any time upon at least sixty (60)
days' written notice to Trust. This Agreement shall terminate
automatically in the event of its "assignment" (as defined in
the 1940 Act). Unless terminated as hereinbefore provided, this
Agreement shall continue in effect with respect to any Fund
until the end of the initial term applicable to that Fund
specified in Schedule A and thereafter from year to year only so
long as such continuance is specifically approved with respect
to that Fund at least annually (a) by a majority of those
Trustees who are not interested persons of Trust or of Manager,
voting in person at a meeting called for the purpose of voting
on such approval, and (b) by either the Board of Trustees of
Trust or by a "vote of a majority of the outstanding shares" of
the Fund.
13. OWNERSHIP OF RECORDS; INTERPARTY REPORTING. All
records required to be maintained and preserved by Trust
pursuant to the provisions of rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the
1940 Act or other applicable laws or regulations which are
maintained and preserved by Manager on behalf of Trust and any
other records the parties mutually agree shall be maintained by
Manager on behalf of Trust are the property of Trust and shall
be surrendered by Manager promptly on request by Trust; provided
that Manager may at its own expense make and retain copies of
any such records.
Trust shall furnish or otherwise make available to Manager
such copies of the financial statements, proxy statements,
reports, and other information relating to the business and
affairs of each Unitholder in a Fund as Manager may, at any time
or from time to time, reasonably require in order to discharge
its obligations under this Agreement.
Manager shall prepare and furnish to Trust as to each Fund
statistical data and other information in such form and at such
intervals as Trust may reasonably request.
<PAGE> 6
14. NON-LIABILITY OF TRUSTEES AND UNITHOLDERS. Any
obligation of Trust hereunder shall be binding only upon the
assets of Trust (or the applicable Fund thereof) and shall not
be binding upon any Trustee, officer, employee, agent or
Unitholder of Trust. Neither the authorization of any action by
the Trustees or Unitholders of Trust nor the execution of this
Agreement on behalf of Trust shall impose any liability upon any
Trustee or any Unitholder.
15. USE OF MANAGER'S NAME. Trust may use the name
"SteinRoe Investment Trust" and the Fund names listed in
Schedule A or any other name derived from the name "Stein Roe &
Farnham" only for so long as this Agreement or any extension,
renewal, or amendment hereof remains in effect, including any
similar agreement with any organization which shall have
succeeded to the business of Manager as investment adviser. At
such time as this Agreement or any extension, renewal or
amendment hereof, or such other similar agreement shall no
longer be in effect, Trust will cease to use any name derived
from the name "Stein Roe & Farnham" or otherwise connected with
Manager, or with any organization which shall have succeeded to
Manager's business as investment adviser.
16. REFERENCES AND HEADINGS. In this Agreement and in any
such amendment, references to this Agreement and all expressions
such as "herein," "hereof," and "hereunder" shall be deemed to
refer to this Agreement as amended or affected by any such
amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this
Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
Dated: August 15, 1995
STEINROE INVESTMENT TRUST
Attest: By: TIMOTHY K. ARMOUR
Timothy K. Armour
JILAINE HUMMEL BAUER President
Jilaine Hummel Bauer
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Hans P. Ziegler
KEITH J. RUDOLF Chief Executive Officer
Keith J. Rudolf
Secretary
<PAGE> 7
STEIN ROE INVESTMENT TRUST
MANAGEMENT AGREEMENT
SCHEDULE A
The Funds of the Trust currently subject to this Agreement are
as follows:
Effective End of
Date Initial Term
--------- ------------
Stein Roe Growth & Income Fund 9/1/95 6/30/97
Stein Roe Young Investor Fund 9/1/95 6/30/97
Stein Roe Balanced Fund 9/1/95 6/30/97
Stein Roe Growth Stock Fund 9/1/95 6/30/97
Stein Roe Capital Opportunities Fund 9/1/95 6/30/97
Stein Roe Special Fund 9/1/95 6/30/97
Stein Roe International Fund 7/1/96 6/30/98
Stein Roe Special Venture Fund 7/1/96 6/30/98
Dated: July 1, 1996
STEINROE INVESTMENT TRUST
Attest: By: TIMOTHY K. ARMOUR
Timothy K. Armour
JILAINE HUMMEL BAUER President
Jilaine Hummel Bauer
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Hans P. Ziegler
JILAINE HUMMEL BAUER Chief Executive Officer
Jilaine Hummel Bauer
Secretary
<PAGE> 8
STEIN ROE INVESTMENT TRUST
MANAGEMENT AGREEMENT
SCHEDULE B
Compensation pursuant to Section 7 of this Agreement shall be
calculated in accordance with the following schedules applicable
to average daily net assets of the Funds:
Schedule B1 (Stein Roe Capital Opportunities Fund, Stein Roe Special Fund)
- ----------------------------
0.750% on first $500 million
0.700% on next $500 million
0.650% on next $500 million
0.600% thereafter
Schedule B2 (Stein Roe Growth Stock Fund, Stein Roe Young
Investor Fund, Stein Roe Growth & Income Fund)
- ----------------------------
0.600% on first $500 million
0.550% on next $500 million
0.500% thereafter
Schedule B3 (Stein Roe Balanced Fund)
- -------------------------------------
0.550% on first $500 million of average daily net assets
0.500% on next $500 million of average daily net assets
0.450% on average daily net assets in excess of $1 billion
Schedule B4 (Stein Roe Special Venture Fund)
- --------------------------------------------
0.750% of average daily net assets
Schedule B5 (Stein Roe International Fund)
- -----------------------------------------
0.850% of average daily net assets
Dated: July 1, 1996
STEINROE INVESTMENT TRUST
Attest: By: TIMOTHY K. ARMOUR
Timothy K. Armour
JILAINE HUMMEL BAUER President
Jilaine Hummel Bauer
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Hans P. Ziegler
JILAINE HUMMEL BAUER Chief Executive Officer
Jilaine Hummel Bauer
Secretary
Exhibit 5(c)
July 1, 1996
Stein Roe Investment Trust
One South Wacker Drive
Chicago, IL 60606
Re: Stein Roe Special Fund
Gentlemen:
The firm of Stein Roe & Farnham Incorporated hereby
undertakes as follows:
In the interest of limiting the expenses of the
series of Stein Roe Investment Trust designated
Stein Roe Special Fund (the "Fund"), Stein Roe &
Farnham Incorporated ("SR&F"), the investment
adviser to the Fund, agrees to reduce its
management fee for the Fund by 0.05% of average
net assets of the Fund through June 30, 1997.
The amount of the fee waiver shall be computed
on an annual basis, but accrued and paid
monthly.
Sincerely,
STEIN ROE & FARNHAM INCORPORATED
By: KENNETH J. KOZANDA
Kenneth J. Kozanda
Chief Financial Officer
Attest:
By: JILAINE HUMMEL BAUER
Jilaine Hummel Bauer
Secretary
<PAGE>
EXHIBIT 6
UNDERWRITING AGREEMENT BETWEEN
THE STEINROE MUTUAL FUNDS
AND LIBERTY SECURITIES CORPORATION
THIS UNDERWRITING AGREEMENT ("Agreement"), made as of
the 22nd day of June, 1987 by and between each of the mutual
funds managed by Stein Roe & Farnham Incoprorated set forth
in the attached Exhibit A, each being a corporation organized
and existing under the laws of the State of Maryland except
for SteinRoe High-Yield Bonds, SteinRoe Governments Plus and
SteinRoe Equity Portfolio, each of which is a business trust
organized and existing under the laws of the Commonwealth of
Massachusetts (hereinafter called, collectively, the "Funds"
and, individually, the "Fund"), and Liberty Securities
Corporation, a corporation organized and existing under the
laws of the State of Delaware (hereinafter call the
"Distributor").
WITNESSETH:
WHEREAS, each Fund is engaged in business as an open-end
management investment company registered under the Investment
Company Act of 1940, as amended ("ICA-40"); and
WHEREAS, the Distributor is registered as a broker-
dealer under the Securities Exchange Act of 1934, as amended
("SEA-34") and, the laws of each state (including the
District of Columbia and Puerto Rico) in which it engages in
business to the extent such law requires, and is a member of
the National Association of Securities Dealers ("NASD") (such
registrations and membership are referred to collectively as
the "Registrations"); and
WHEREAS, each Fund desires the Distributor to act as the
distributor in the public offering of its shares of capital
stock or, in the case of a Fund organized as a business
trust, its shares of beneficial interest (hereinafter called
"Shares");
WHEREAS, each Fund shall pay all charges of its
transfer, shareholder recordkeeping, dividend disbursing and
redemption agents, if any; all expenses of notices, proxy
solicitation material and reports to shareholders; all
expenses of preparation and printing of annual or more
frequent revisions of the Fund's Prospectus and Supplemental
Information Statement and of supplying copies thereof to
shareholders; all expenses of registering and maintaining the
registration of such Fund under ICA-40 and of such Fund's
Shares under the Securities Act of 1933, as amended ("SA-
33"); all expenses of qualifying and maintaining
qualification of such Fund and of such Fund's Shares for sale
under securities laws of various states or other
jurisdictions and of registration and qualification of such
Fund under all laws applicable to such Fund or its business
activities;
WHEREAS, Stein Roe & Farnham Incorporated, investment
adviser to the Funds, shall pay all expenses incurred in the
sale and promotion of each Fund;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the
mutual promises hereinafter set forth, the parties hereto
agree as follows:
1. Appointment. Each Fund appoints Distributor to act
as principal underwriter (as such term is defined in Sections
2(a)(29) of ICA-40) of its Shares.
2. Delivery of Fund Documents. Each Fund has furnished
Distributor with properly certified or authenticated copies
of each of the following in effect on the date hereof and
shall furnish Distributor from time to time properly
certified or authenticated copies of all amendments or
supplements thereto:
(a) Articles of Incorporation or, in the case of a Fund
organized as a business trust, Agreement and
Declaration of Trust;
(b) By-Laws;
(c) Resolutions of the Board of Directors or, in the
case of a Fund organized as a business trust, the
Board of Trustees of the Fund (hereinafter referred
to as the "Board") selecting Distributor as
distributor and approving this form of agreement and
authorizing its execution.
Each Fund shall furnish Distributor promptly with copies
of any registration statements filed by it with the
Securities and Exchange Commission ("SEC") under SA-33 or
ICA-40, together with any financial statements and exhibits
included therein, and all amendments or supplements thereto
hereafter filed.
Each Fund also shall furnish Distributor such other
certificates or documents which Distributor may from time to
time, in its discretion, reasonably deem necessary or
appropriate in the proper performance of its duties.
3. Solicitation of Orders for Purchase of Shares.
(a) Subject to the provisions of Paragraphs 4, 5 and 7
hereof, and to such minimum purchase requirements as may from
time to time be indicated in each Fund's Prospectus,
Distributor is authorized to solicit, as agent on behalf of
each Fund, unconditional orders for purchases of such Fund's
Shares authorized for issuance and registered under SA-33,
provided that:
(1) Distributor shall act solely as a disclosed agent
on behalf of and for the account of each Fund;
(2) Each Fund or its transfer agent shall receive
directly from investors all payments for the
purchase of such Fund's Shares and also shall pay
directly to shareholders amounts due to them for
the redemption or repurchase of all such Fund's
Shares with Distributor having no rights or duties
to accept such payment or to effect such
redemptions or repurchases;
<PAGE> 3
(3) Distributor shall confirm all orders received for
purchase of a Fund's Shares which confirmation
shall clearly state (i) that Distributor is acting
as agent of such Fund in the transaction (ii) that
all certificates for redemption, remittances, and
registration instructions should be sent directly
to the Fund, and (iii) the Fund's mailing address;
(4) Distributor shall have no liability for payment for
purchases of a Fund's Shares it sells as agent;
and
(5) Each order to purchase Shares of a Fund received
by Distributor shall be subject to acceptance by an
officer of such Fund in Chicago and entry of the
order on such Fund's records or shareholder
accounts and is not binding until so accepted and
entered.
The purchase price to the public of a Fund's Shares
shall be the public offering price as defined in Paragraph 6
hereof.
(b) In consideration of the rights granted to the
Distributor under this Agreement, Distributor will use its
best efforts (but only in states in which Distributor may
lawfully do so) to solicit from investors unconditional
orders to purchase Shares of each Fund. Each Fund shall make
available to the Distributor without cost to the Distributor
such number of copies of the Fund's currently effective
Prospectus and Supplemental Information Statement and copies
of all information, financial statements and other papers
which the Distributor may reasonably request for use in
connection with the distribution of Shares.
4. Solicitation of Orders to Purchase Shares by Fund.
The rights granted to the Distributor shall be non-exclusive
in that each Fund reserves the right to solicit purchases
from, and sell its Shares to, investors. Further, each Fund
reserves the right to issue Shares in connection with the
merger or consolidation of any other investment company,
trust or personal holding company with such Fund, or such
Fund's acquisition, by the purchase or otherwise, of all or
substantially all of the assets of an investment company,
trust or personal holding company, or substantially all of
the outstanding shares or interests of any such entity. Any
right granted to Distributor to solicit purchases of Shares
will not apply to Shares that may be offered by a Fund to
shareholders by virtue of their being shareholders of such
Fund.
5. Shares Covered by this Agreement. This Agreement
relates to the solicitation of orders to purchase Shares that
are duly authorized and registered and available for sale by
each Fund, including redeemed or repurchased Shares if and to
the extent that they may be legally sold and if, but only if,
a Fund authorizes the Distributor to sell them.
6. Public Offering Price. All solicitations by the
Distributor pursuant to this Agreement shall be for orders to
purchase Shares of a Fund at the public offering price. The
public offering price for each accepted subscription for a
Fund's Shares will be the net asset value per share next
determined by such Fund after it accepts such subscription.
The net asset value per share shall be determined in the
manner provided in such Fund's
<PAGE> 4
Articles of Incorporation or Agreement and Declaration of
Trust as now in effect or as they may be amended, and as
reflected in such Fund's then current Prospectus and
Supplemental Information Statement.
7. Suspension of Sales. If and whenever the
determination of a Fund's net asset value is suspended and
until such suspension is terminated, no further orders for
Shares shall be accepted by the Fund except such
unconditional orders placed with the Fund and accepted by it
before the suspension. In addition, each Fund reserves the
right to suspend sales of Shares if, in the judgement of the
Board of such Fund, it is in the best interest of the Fund to
do so, such suspension to continue for such period as may be
determined by the Board of the Fund; and in that event, (i)
at the direction of the Fund, Distributor shall suspend its
solicitation of orders to purchase Shares of such Fund until
otherwise instructed by such Fund and (ii) no orders to
purchase Shares shall be accepted by the Fund while such
suspension remains in effect unless otherwise directed by its
Board.
8. Authorized Representations. No Fund is authorized
by the Distributor to give on behalf of the Distributor any
information or to make any representations other than the
information and representations contained in such Fund's
registration statement filed with the SEC under SA-33 and/or
ICA-40 as it may be amended from time to time.
Distributor is not authorized by any Fund to give on
behalf of such Fund any information or to make any
representations in connection with the sale of Shares other
than the information and representations contained in such
Fund's registration statement filed with the SEC under SA-33
and/or ICA-40, covering Shares, as such registration
statement or such Fund's prospectus may be amended or
supplemented from time to time, or contained in shareholder
reports or other material that may be prepared by or on
behalf of such Fund or approved by such Fund for the
Distributor's use. No person other than Distributor is
authorized to act as principal underwriter (as such term is
defined in ICA-40, as amended) for the Funds.
9. Registration of Additional Shares. Each Fund hereby
agrees to register either (i) an indefinite number of Shares
pursuant to Rule 24f-2 under ICA-40, or (ii) a definite
number of Shares as such Fund shall deem advisable pursuant
to Rule 24e-2 under ICA-40, as amended. Each Fund will, in
cooperation with the Distributor, take such action as may be
necessary from time to time to qualify the Shares (so
registered or otherwise qualified for sale under SA-33), in
any state mutually agreeable to the Distributor and such
Fund, and to maintain such qualification; provided, however,
that nothing herein shall be deemed to prevent such Fund from
registering its shares without approval of the Distributor in
any state it deems appropriate.
10. Conformity With Law. Distributor agrees that in
soliciting orders to purchase Shares it shall duly conform in
all respects with applicable federal and state laws and the
rules and regulations of the NASD. Distributor will use its
best efforts to maintain its Registrations in good standing
during the term of this Agreement and will promptly notify
the Funds and Stein Roe & Farnham Incorporated in the event
of the suspension or termination of any of the Registrations.
<PAGE> 5
11. Independent Contractor. Distributor shall be an
independent contractor and neither the Distributor, nor any
of its officers, directors, employees, or representatives is
or shall be an employee of any Fund in the performance of
Distributor's duties hereunder. Distributor shall be
responsible for its own conduct and the employment, control,
and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents and
employees and agrees to pay all employee taxes thereunder.
12. Indemnification. Distributor agrees to indemnify
and hold harmless each Fund and each of the members of its
Board and its officers, employees and representatives and
each person, if any, who controls such Fund within the
meaning of Section 15 of SA-33 against any and all losses,
liabilities, damages, claims and expenses (including the
reasonable costs of investigating or defending any alleged
loss, liability, damage, claim or expense and reasonable
legal counsel fees incurred in connection therewith) to which
such Fund or such of the members of its Board and of its
officers, employees, representatives, or controlling person
or persons may become subject under SA-33, under any other
statute, at common law, or otherwise, arising out of the
acquisition of any Shares of such Fund by any person which
(i) may be based upon any wrongful act by Distributor or any
of Distributor's directors, officers, employees or
representatives, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact
contained in a registration statement, Prospectus,
Supplemental Information Statement, shareholder report or
other information covering Shares of such Fund filed or made
public by such Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading if such statement
or omission was made in reliance upon information furnished
to such Fund by Distributor in writing. In no case (i) is
Distributor's indemnity in favor of a Fund, or any person
indemnified, to be deemed to protect such Fund or such
indemnified person against any liability to which such Fund
or such person would otherwise be subject by reason of
willful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his
reckless disregard of its or his obligations and duties under
this Agreement or (ii) is Distributor to be liable under its
indemnity agreement contained in this paragraph with respect
to any claim made against a Fund or any person indemnified
unless such Fund or such person, as the case may be, shall
have notified Distributor in writing of the claim within a
reasonable time after the summons, or other first written
notification, giving information of the nature of the claim
served upon such Fund or upon such person (or after such Fund
or such person shall have received notice of such service on
any designated agent). However, failure to notify
Distributor of any such claim shall not relieve Distributor
from any liability which Distributor may have to a Fund or
any person against whom such action is brought otherwise than
on account of Distributor's indemnity agreement contained in
this Paragraph.
Distributor shall be entitled to participate, at its own
expense, in the defense, or, if Distributor so elects, to
assume the defense of any suit brought to enforce any such
claim but, if Distributor elects to assume the defense, such
defense shall be conducted by legal counsel chosen by
Distributor and satisfactory to the persons indemnified who
are defendants in the
<PAGE> 6
suit. In the event that Distributor elects to assume the
defense of any such suit and retain such legal counsel,
persons indemnified who are defendants in the suit shall bear
the fees and expenses of any additional legal counsel
retained by them. If Distributor does not elect to assume
the defense of any such suit, Distributor will reimburse
persons indemnified who are defendants in such suit for the
reasonable fees of any legal counsel retained by them in such
litigation.
Each Fund agrees to indemnify and hold harmless
Distributor and each of its directors, officers, employees,
and representatives and each person, if any, who controls
Distributor within the meaning of Section 15 of SA-33 against
any and all losses, liabilities, damages, claims or expenses
(including the damage, claim or expense and reasonable legal
counsel fees incurred in connection therewith) to which
Distributor or such of its directors, officers, employees,
representatives or controlling person or persons may become
subject under SA-33, under any other statute, at common law,
or otherwise arising out of the acquisition of any Shares by
any person which (i) may be based upon any wrongful act by
such Fund or any of the members of such Fund's Board, or such
Fund's officers, employees or representatives other than
Distributor, or (ii) may be based upon any untrue statement
or alleged untrue statement of a material fact contained in a
registration statement, Prospectus, Supplemental Information
Statement, shareholder report or other information covering
Shares filed or made public by such Fund or any amendment
thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading unless such statement or omission was made in
reliance upon information furnished by Distributor to such
Fund. In no case (i) is such Fund's indemnity in favor of
the Distributor or any person indemnified to be deemed to
protect the Distributor or such indemnified person against
any liability to which Distributor or such indemnified person
would otherwise be subject by reason of willful misfeasance,
bad faith, or negligence in the performance of its or his
duties or by reason of its or his reckless disregard of its
or his obligations and duties under this Agreement, or (ii)
is the Fund to be liable under its indemnity agreement
contained in this Paragraph with respect to any claim made
against Distributor or any person indemnified unless
Distributor, or such person, as the case may be, shall have
notified the Fund in writing of the claim within a reasonable
time after the summons, or other first written notification,
giving information of the nature of the claim served upon
Distributor or upon such person (or after Distributor or such
person shall have received notice of such service on any
designated agent). However, failure to notify a Fund of any
such claim shall not relieve such Fund from any liability
which such Fund may have to Distributor or any person against
whom such action is brought otherwise than on account of such
Fund's indemnity agreement contained in this Paragraph.
Each Fund shall be entitled to participate, at its own
expense, in the defense or, if the Fund so elects, to assume
the defense of any suit brought to enforce such claim but, if
the Fund elects to assume the defense, such defense shall be
conducted by legal counsel chosen by the Fund and
satisfactory to the persons indemnified who are defendants in
the suit. In the event that a Fund elects to assume the
defense of any such suit and retain such legal counsel, the
persons indemnified who are defendants in the suit
<PAGE> 7
shall bear the fees and expenses of any additional legal
counsel retained by them. If a Fund does not elect to assume
the defense of any such suit, the Fund will reimburse the
persons indemnified who are defendants in such suit for the
reasonable fees and expenses of any legal counsel retained by
them in such litigation.
13. Duration and Termination of this Agreement. With
respect to each Fund and the Distributor, this Agreement
shall become effective upon its execution ("Effective Date")
and unless terminated as provided herein, shall remain in
effect through June 22, 1989, and from year to year
thereafter, but only so long as such continuance is
specifically approved at least annually (a) by a vote of
majority of the members of the Board of such Fund who are not
interested persons of the Distributor or of the Fund, voting
in person at a meeting called for the purpose of voting on
such approval, and (b) by the vote of either the Board of
such Fund or a majority of the outstanding shares of such
Fund. This Agreement may be terminated by and between an
individual Fund and Distributor at any time, without the
payment of any penalty (a) on 60 days' written notice, by the
Board of such Fund or by a vote of a majority of the
outstanding Shares of such Fund, or by Distributor, or (b)
immediately, on written notice by the Board of such Fund, in
the event of termination or suspension of any of the
Registrations. This Agreement will automatically terminate
in the event of its assignment. In interpreting the
provisions of this Paragraph 13, the definitions contained in
Section 2(a) of ICA-40 (particularly the definitions of
"interested person", "assignment", and "majority of the
outstanding shares") shall be applied.
14. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged, or terminated
orally, but only by an instrument in writing signed by each
party against which enforcement of the change, waiver,
discharge, or termination is sought. If a Fund should at any
time deem it necessary or advisable in the best interests of
such Fund that any amendment of this Agreement be made in
order to comply with the recommendations or requirements of
the SEC or any other governmental authority or to obtain any
advantage under state or Federal tax laws and notifies
Distributor of the form of such amendment, and the reasons
therefore, and if Distributor should decline to assent to
such amendment, such Fund may terminate this Agreement
forthwith. If Distributor should at any time request that a
change be made in a Fund's Articles of Incorporation or
Agreement and Declaration of Trust or By-Laws or in its
methods of doing business, in order to comply with any
requirements of Federal law or regulations of the SEC, or of
a national securities association of which Distributor is or
may be a member, relating to the sale of Shares, and such
Fund should not make such necessary changes within a
reasonable time, Distributor may terminate this Agreement
forthwith.
15. Liability. It is understood and expressly
stipulated that neither the shareholders of a Fund nor the
members of the Board of such Fund shall be personally liable
hereunder. The obligations of a Fund are not personally
binding upon, nor shall resort to the private property of,
any of the members of the Board of such Fund, nor of the
shareholders, officers, employees or agents of such Fund, but
only such Fund's property shall be bound.
16. Miscellaneous. The captions in this Agreement are
included for convenience or reference only, and in no way
define or limit any of the
<PAGE> 8
provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
17. Notice. Any notice required or permitted to be
given by a party to this Agreement or to any other party
hereunder shall be deemed sufficient if delivered in person
or sent by registered or certified mail, postage prepaid,
addressed by the party giving notice to each such other party
at the address provided below or to the last address
furnished by each such other party to the party giving
notice.
If to a Fund: 300 West Adams Street
Chicago, Illinois 60606
Attn: Secretary
If to Distributor: 600 Atlantic Avenue
Boston, Massachusetts 02212
Attn: Secretary
If to Stein Roe & Farnham
Incorporated: 1 South Wacker Drive
Chicago, Illinois 60606
Attn: Secretary
LIBERTY SECURITIES CORPORATION
By: JOHN T. TREECE
Vice President
ATTEST:
JOHN A. BENNING
Secretary
STEINROE MUTUAL FUNDS*
By: JAMES D. WINSHIP
Executive Vice President
ATTEST:
JILAINE HUMMEL BAUER
Secretary
ACKNOWLEDGED BY: STEIN ROE & FARNHAM INCORPORATED
By: JAMES D. WINSHIP
Executive Vice President
*See Exhibit A
ATTEST:
JAMES W. ATKINSON
Secretary
<PAGE>
Revised Exhibit A to Distribution Agreement
Between the SteinRoe Mutual Funds and
Liberty Securities Corporation
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Reserves Fund
Stein Roe Limited Maturity Income Fund
STEIN ROE INVESTMENT TRUST
Stein Roe Growth & Income Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Balanced Fund
Stein Roe Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
4/96
<PAGE>
FIRST AMENDMENT TO
UNDERWRITING AGREEMENT
BETWEEN
THE STEINROE MUTUAL FUNDS
AND LIBERTY SECURITIES CORPORATION
This amendment, made this 28th day of October, 1992 (the
"First Amendment"), amends the Underwriting Agreement dated
June 22, 1987 (the "Agreement") by and among Stein Roe Income
Trust and Stein Roe Investment Trust (the "Funds"), each a
Massachusetts business trust, and Liberty Securities
Corporation (the "Distributor"), a Delaware Corporation.
WHEREAS, each of the Funds wishes to authorize the
Distributor to enter into agreements with other broker-
dealers providing for the sale of shares of beneficial
interest of the Fund;
NOW, THEREFORE, the Agreement is hereby amended by
adding the following after Section 3:
"Section 3.A. Selling Agreements. Distributor is
authorized, as agent on behalf of each Fund, to enter into
agreements with other broker-dealers providing for the
solicitation of unconditional orders for purchases of Fund's
Shares authorized for issuance and registered under the
Securities Act of 1933. All such agreements shall be either
in the form of agreement attached hereto or in such other
form as may be approved by the officers of the Fund ("Selling
Agreement"). All solicitations made by other broker-dealers
pursuant to a Selling Agreement shall be subject to the same
terms of this Agreement which apply to solicitations made by
Distributor."
Except as otherwise expressly amended herein, the
provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this First
Amendment to be executed as of the day and year first written
above.
STEINROE MUTUAL FUNDS*
BY: LAWRENCE R. MAFFIA
ATTEST: Title: Senior Vice-President
BY: JILAINE HUMMEL BAUER
Secretary
LIBERTY SECURITIES CORPORATION
BY: JOHN T. TREECE
ATTEST: Sr. VP & Treasurer
BY: JOHN DAVENPORT
*SteinRoe Income Trust
SteinRoe Investment Trust
<PAGE>
Date _____________
LIBERTY SECURITIES CORPORATION
STEINROE GOVERNMENT RESERVES
SELLING AGREEMENT
Dear Sirs:
As the principal underwriter of SteinRoe Government
Reserves (the "Fund"), a series of SteinRoe Income Trust (the
"Trust"), a Massachusetts business trust registered under the
Investment Company Act of 1940 as an open-end investment
company, we invite you as agent for your customer to
participate in the distribution of shares of beneficial
interest in the Fund ("Shares"), subject to the following
terms and conditions:
1. We hereby grant to you the right to make Shares
available to, and to solicit orders to purchase Shares by,
the public, subject to applicable federal and state law, the
Agreement and Declaration of Trust and By-laws of the Trust,
and the current Prospectus and Statement of Additional
Information relating to the Fund attached hereto (the
"Prospectus"). You will forward to us or to the Trust's
transfer agent, as we may direct from time to time, all
orders for the purchase of Shares obtained by you, subject to
such terms and conditions as to the form of payment, minimum
initial and subsequent purchase and otherwise, and in
accordance with such procedures and directions, as we may
specify from time to time. All orders are subject to
acceptance by an authorized officer of the Trust in Chicago
and the Trust reserves the right in its sole discretion to
reject any order. Share purchases are not binding on the
Trust until accepted and entered on the books of the Fund.
No Share purchase shall be effective until payment is
received by the Trust in the form of Federal funds. If a
Share purchase by check is cancelled because the check does
not clear, you will be responsible for any loss to the Fund
or to us resulting therefrom.
2. The public offering price of the Shares shall be the
net asset value per share of the outstanding Shares
determined in accordance with the then current Prospectus.
No sales charge shall apply.
3. As used in this Agreement, the term "Registration
Statement" with regard to the Fund shall mean the
Registration Statement most recently filed by the Trust with
the Securities and Exchange Commission and effective under
the Securities Act of 1933, as such Registration Statement is
amended by any amendments thereto at the time in effect, and
the terms "prospectus" and "statement of additional
information" with regard to the Fund shall mean the form of
prospectus and statement of additional information relating
to the Fund as attached hereto filed by the Trust as part of
the Registration Statement, as such form of prospectus and
statement of additional information may be amended or
supplemented from time to time.
4. You hereby represent that you are and will remain
during the term of this Agreement duly registered as a
broker-dealer under the Securities Exchange Act of 1934 and
under the securities laws of each state where your activities
require such registration, and that you are and will remain
during the term of this Agreement a member in good standing
of the National Association of Securities Dealers, Inc.
("NASD"). In the conduct of your activities hereunder, you
will abide by all applicable rules and regulations of the
NASD, including, without limitation, Rule 26 of the Rules of
Fair Practice of the NASD as in effect form time to time, and
all applicable federal and state securities laws, including
without limitation, the prospectus delivery requirements of
the Securities Act of 1933.
5. This Agreement is subject to the right of the Trust
at any time to withdraw all offerings of the Shares by
written notice to us at our principal office. You
acknowledge that the Trust will not issue certificates
representing Shares.
6. Your obligations under this Agreement are not to be
deemed exclusive, and you shall be free to render similar
services to others so long as your services hereunder are not
impaired thereby.
7. You will sell Shares only to residents of states or
other jurisdictions where we have notified you that the
Shares have been registered or qualified for sale to the
public or are exempt from such qualification or registration.
Neither we nor the Trust will have any obligation to register
or qualify the Shares in any particular jurisdiction. We
shall not be liable or responsible for the issue, form
validity, enforceability or value of the Shares or for any
matter in connection therewith, except lack of good faith on
our part, and no obligation not expressly assumed by us in
this Agreement shall be implied therefrom. Nothing herein
contained, however, shall be deemed to be a condition,
stipulation or provision binding any person acquiring any
Shares to waive compliance with any provision of the
Securities Act of 1933, or to relieve the parties hereto from
any liability arising thereunder.
8. You are not authorized to make any representations
concerning the Fund, the Trust or the Shares except those
contained in the then current prospectus and statement of
additional information relating to the Fund, or printed
information issued by the Trust or by us as information
supplemental to such prospectus and statement of additional
information. We will supply you with a reasonable number of
copies of the then current prospectus and statement of
additional information of the Fund, and reasonable quantities
of any supplemental sales literature, sales bulletins, and
additional information as may be issued by us or the Trust.
You will not use any advertising or sales material relating
to the Fund other than materials supplied by the Trust or us,
unless such other material is approved in writing by us in
advance of such use.
9. You will not have any authority to act as agent for
the Trust, for us or for any other dealer. All transactions
between you and us contemplated by this Agreement shall be as
agents.
10. Either party to this Agreement may terminate this
Agreement by giving written notice to the other. Such notice
shall be deemed to have been given on the date on which it is
either delivered personally to the other party, is mailed
postpaid or delivered by telecopier to the other party at its
address listed below. This Agreement may be amended by us at
any time, and your placing of an order after the effective
date of any such amendment shall constitute your acceptance
thereof.
Liberty Securities Corporation Dealer
600 Atlantic Avenue ________________
Boston, Massachusetts 02210 ________________
Attention: ________________ ________________
Telecopier: _______________
with copy to:
SteinRoe Income Trust
300 West Adams Street
Chicago, Illinois 60606
Attention: Secretary
Telecopier: 312/368-2506
11. This Agreement constitutes the entire agreement
between you and us relating to the subject matter hereof and
supersedes all prior or written agreements between us. This
Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts and shall be binding upon
both parties hereto when signed by us and accepted by you in
the space provided below.
Very truly yours,
LIBERTY SECURITIES CORPORATION
BY: ____________________
The undersigned hereby accepts your invitation to
participate in the distribution of Shares and agrees to each
of the terms and conditions set forth in this letter.
___________________________
Dealer
Date: ____________________ By: _______________________
(Signature of Officer)
Pay Office of Dealer:
__________________________ ___________________________
Street Address (Print Name of Officer)
__________________________
City/State/Zip
__________________________
Telephone Number
Exhibit 9(b)
<PAGE> 1
STEINROE FUNDS
ACCOUNTING AND BOOKKEEPING AGREEMENT
(AUGUST 1,1994)
This Agreement is made this 1st day of August. 1994, by
and between SteinRoe Investment Trust, a Massachusetts common
law trust, (hereinafter referred to as the "Trust") and Stein
Roe & Farnham Incorporated ("SteinRoe"), a Delaware corporation.
1. Appointment. Each Trust hereby appoints SteinRoe to act as
its agent to perform the services described herein with respect
to each series of shares of the Trust (the "Series") identified
in and beginning on the date specified on Appendix I to this
Agreement, as may be amended from time to time. SteinRoe
hereby accepts appointment as each Trust's agent and agrees to
perform the services described herein.
2. Accounting.
(a) Pricing. For each Series of the Trust, SteinRoe shall
value all securities and other assets of the Series,
and compute the net asset value per share of such
Series, at such times and dates and in the manner and
by such methodology as is specified in the then
currently effective prospectus and statement of
additional information for such Series, and pursuant
to such other written procedures or instructions
furnished to SteinRoe by the Trust. To the extent
procedures or instructions used to value securities
or other assets of a Series under this Agreement are
at any time inconsistent with any applicable law or
regulation, the Trust shall provide SteinRoe with
written instructions for valuing such securities or
assets in a manner which the Trust represents to be
consistent with applicable law and regulation.
(b) Net Income. SteinRoe shall calculate with such
frequency as the Trust shall direct, the net income
of each Series of the Trust for dividend purposes and
on a per share basis. Such calculation shall be at
such times and dates and in such manner as the Trust
shall instruct SteinRoe in writing. For purposes of
such calculation, SteinRoe shall not be responsible
for determining whether any dividend or interest
accruable to the Trust is or will be actually paid,
but will accrue such dividend and interest unless
otherwise instructed by the Trust.
(c) Capital Gains and Losses. SteinRoe shall calculate
gains or losses of each Series of the Trust from the
sale or other disposition of assets of that Series as
the Trust shall direct.
<PAGE> 2
(d) Yields. At the request of the Trust, SteinRoe shall
compute yields for each Series of the Trust for such
periods and using such formula as shall be instructed
by the Trust.
(e) Communication of Information. SteinRoe shall provide
the Trust, the Trust's transfer agent and such other
parties as directed by the Trust with the net asset
value per share, the net income per share and yields
for each Series of the Trust at such time and in such
manner and format and with such frequency as the
parties mutually agree.
(f) Information Furnished by the Trust. The Trust shall
furnish SteinRoe with any and all instructions,
explanations, information, specifications and
documentation deemed necessary by SteinRoe in the
performance of its duties hereunder, including,
without limitation, the amounts and/or written
formula for calculating the amounts, and times of
accrual of liabilities and expenses of each Series of
the Trust. The Trust shall also at any time and from
time to time furnish SteinRoe with bid, offer and/or
market values of securities owned by the Trust if the
same are not available to SteinRoe from a pricing or
similar service designated by the Trust for use by
SteinRoe to value securities or other assets.
SteinRoe shall at no time be required to commence or
maintain any utilization of, or subscriptions to, any
such service which shall be the sole responsibility
and expense of the Trust.
3. Recordkeeping.
(a) SteinRoe shall, as agent for the Trust, maintain and
keep current and preserve the general ledger and
other accounts, books, and financial records of the
Trust relating to activities and obligations under
this Agreement in accordance with the applicable
provisions of Section 31(a) of the General Rules and
Regulations under the Investment Company Act of 1940,
as amended (the "Rules").
(b) All records maintained and preserved by SteinRoe
pursuant to this Agreement which the Trust is
required to maintain and preserve in accordance with
the Rules shall be and remain the property of the
Trust and shall be surrendered to the Trust promptly
upon request in the form in which such records have
been maintained and preserved.
(c) SteinRoe shall make available on its premises during
regular business hours all records of a Trust for
reasonable audit, use
<PAGE> 3
and inspection by the Trust, its agents and any
regulatory agency having authority over the Trusts.
4. Instructions, Opinion of Counsel, and Signatures.
(a) At any time Stein Roe may apply to a duly authorized
agent of the Trust for instructions regarding the
Trust, and may consult counsel for such Trust or its
own counsel, in respect of any matter arising in
connection with this Agreement, and it shall not be
liable for any action taken or omitted by it in good
faith in accordance with such instructions or with
the advice or opinion of such counsel. SteinRoe
shall be protected in acting upon any such
instruction, advice, or opinion and upon any other
paper or document delivered by the Trust or such
counsel believed by SteinRoe to be genuine and to
have been signed by the proper person or persons and
shall not be held to have notice of any change of
authority of any officer or agent of the Trust, until
receipt of written notice thereof from such Trust.
(b) SteinRoe may receive and accept a certified copy of a
vote of the Board of Trustees of the Trust as
conclusive evidence of (i) the authority of any
person to act in accordance with such vote or (ii)
any determination or any action by the Board of
Trustees pursuant to its Agreement and Declaration of
Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt
by SteinRoe of written notice to the contrary.
5. Compensation. The Trust shall reimburse SteinRoe from the
assets of the respective applicable Series of the Trust, for
any and all out-of-pocket expenses and charges in performing
services under this Agreement and such compensation as is
provided in Appendix II******************************************
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****************************************************** such
information as confidential. Upon termination of this
Agreement, SteinRoe shall return to each Trust all records in
the possession and control of SteinRoe related to such Trust's
activities, other than SteinRoe's own business records, it
being also understood and agreed that any programs and systems
used by SteinRoe to provide the services rendered hereunder
will not be given to any Trust.
<PAGE> 4
7. Liability and Indemnification.
(a) SteinRoe shall not be liable to any Trust for any
action taken or thing done by it or its employees or
agents on behalf of the Trust in carrying out the
terms and provisions of this Agreement if done in
good faith and without negligence or misconduct on
the part of SteinRoe, its employees or agents.
(b) Each Trust shall indemnify and hold SteinRoe, and its
controlling persons, if any, harmless from any and
all claims, actions, suits, losses, costs, damages,
and expenses, including reasonable expenses for
counsel, incurred by it in connection with its
acceptance of this Agreement, in connection with any
action or omission by it or its employees or agents
in the performance of its duties hereunder to the
Trust, or as a result of acting upon instructions
believed by it to have been executed by a duly
authorized agent of the Trust or as a result of
acting upon information provided by the Trust in form
and under policies agreed to by SteinRoe and the
Trust, provided that: (i) to the extent such claims,
actions, suits, losses, costs, damages, or expenses
relate solely to one or more Series, such
indemnification shall be only out of the assets of
that Series or group of Series; (ii) this
indemnification shall not apply to actions or
omissions constituting negligence or misconduct on
the part of SteinRoe or its employees or agents,
including but not limited to willful misfeasance, bad
faith, or gross negligence in the performance of
their duties, or reckless disregard of their
obligations and duties under this Agreement; and
(iii) SteinRoe shall give the Trust prompt notice and
reasonable opportunity to defend against any such
claim or action in its own name or in the name of
SteinRoe.
(c) SteinRoe shall indemnify and hold harmless each Trust
from and against any and all claims, demands,
expenses and liabilities which such Trust may sustain
or incur arising out of, or incurred because of, the
negligence or misconduct of SteinRoe or its agents or
contractors, or the breach by SteinRoe of its
obligations under this Agreement, provided that: (i)
this indemnification shall not apply to actions or
omissions constituting negligence or misconduct on
the part of such Trust or its other agents or
contractors and (ii) such Trust shall give SteinRoe
prompt notice and reasonable opportunity to defend
against any such claim or action in its own name or
in the name of such Trust.
<PAGE> 5
8. Further Assurances. Each party agrees to perform such
further acts and execute such further documents as are
necessary to effectuate the purposes hereof.
9. Dual Interests. It is understood and agreed that some
person or persons may be trustees, officers, or shareholders of
both the Trusts and SteinRoe, and that the existence of any
such dual interest shall not affect the validity hereof or of
any transactions hereunder except as otherwise provided by
specific provision of applicable law.
10. Amendment and Termination. This Agreement may be modified
or amended from time to time, or terminated, by mutual
agreement between the parties hereto and may be terminated by
at least one hundred eighty (180) days' written notice given by
one party to the other. Upon termination hereof, each Trust
shall pay to SteinRoe such compensation as may be due from it
as of the date of such termination, and shall reimburse
SteinRoe for its costs, expenses, and disbursements payable
under this Agreement to such date. In the event that, in
connection with termination, a successor to any of the duties
or responsibilities of SteinRoe hereunder is designated by a
Trust by written notice to SteinRoe, SteinRoe shall promptly
upon such termination and at the expense of such Trust, deliver
to such successor all relevant books, records, and data
established or maintained by SteinRoe under this Agreement and
shall cooperate in the transfer of such duties and
responsibilities, including provision, at the expense of such
Trust, for assistance from SteinRoe personnel in the
establishment of books, records, and other data by such
successor.
11. Assignment. Any interest of SteinRoe under this Agreement
shall not be assigned or transferred either voluntarily or
involuntarily, by operation of law or otherwise, without prior
written notice to each Trust.
12. Notice. Any notice under this Agreement shall be in
writing, addressed and delivered or sent by registered mail,
postage prepaid to the other party at such address as such
other party may designate for the receipt of such notices.
Until further notice to the other parties, it is agreed that
the address of each Trust and SteinRoe is One South Wacker
Drive, Chicago, Illinois 60606, Attention: Secretary.
13. Non-Liability of Trustees and Shareholders. Any
obligation of the Trust hereunder shall be binding only upon
the assets of that Trust (or the applicable Series thereof), as
provided in the Agreement and Declaration of Trust of that
Trust, and shall not be binding upon any Trustee, officer,
employee, agent or shareholder of the Trust or upon any other
Trust. Neither the authorization of any action by the Trustees
or the shareholders of the Trust, nor the execution of this
Agreement on behalf of the Trust shall impose any liability
upon any Trustee or any shareholder. Nothing in this
<PAGE> 6
Agreement shall protect any Trustee against any liability to
which such Trustee would otherwise be subject by willful
misfeasance, bad faith or gross negligence in the performance of
his duties, or reckless disregard of his obligations and duties
under this Agreement. In connection with the discharge and
satisfaction of any claim made by SteinRoe against the Trust
involving more than one Series, the Trust shall have the
exclusive right to determine the appropriate allocations of
liability for any such claim between or among the Series.
14. References and Headings. In this Agreement and in any
such amendment, references to this Agreement and all
expressions such as "herein," "hereof," and "hereunder," shall
be deemed to refer to this Agreement as amended or affected by
any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as part
hereof or control or affect the meaning, construction or effect
of this Agreement. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an
original.
15. Governing Law. This Agreement shall be governed by the
laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed as of the day and year first above written.
STEINROE INVESTMENT TRUST
By: TIMOTHY K. ARMOUR
President
Attest:
JILAINE HUMMEL BAUER
Secretary
STEIN ROE & FARNHAM INCORPORATED
By: TIMOTHY K. ARMOUR
President - Fund Division
Attest:
JILAINE HUMMEL BAUER
Assistant Secretary
<PAGE>
APPENDIX I
FUND EFFECTIVE DATE
- --------- --------------
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund August 1, 1994
Stein Roe Young Investor Fund August 1, 1994
Stein Roe Growth & Income Fund February 1, 1995
Stein Roe Special Venture Fund February 1, 1995
Stein Roe Balanced Fund February 1, 1995
Stein Roe Growth Stock Fund February 1, 1995
Stein Roe Capital Opportunities Fund February 1, 1995
Stein Roe Special Fund February 1, 1995
<PAGE>
APPENDIX II
For the services provided under the Accounting Agreement
(the "Agreement"), the Trust shall pay SteinRoe an annual fee
with respect to each Fund, calculated and paid monthly, equal to
$25,000 plus .0025 percent per annum of the average daily net
assets of the Fund in excess of $50 million. Such fee shall be
paid within thirty days after receipt of monthly invoice.
<PAGE> 1
Exhibit 9(c)
ADMINISTRATIVE AGREEMENT
BETWEEN
STEINROE INVESTMENT TRUST
AND
STEIN ROE & FARNHAM INCORPORATED
STEINROE INVESTMENT TRUST, a Massachusetts business trust
registered under the Securities Act of 1933 ("1933 Act") and the
Investment Company Act of 1940 ("1940 Act") (the "Trust"), hereby
appoints STEIN ROE & FARNHAM INCORPORATED, a Delaware
corporation, of Chicago, Illinois ("Administrator"), to furnish
certain administrative services with respect to the Trust and the
series of the Trust listed in Schedule A hereto, as such schedule
may be amended from time to time (each such series hereinafter
referred to as "Fund").
The Trust and Administrator hereby agree that:
1. ADMINISTRATIVE SERVICES. Subject to the terms of this
Agreement and the supervision and control of the Trust's Board of
Trustees ("Trustees"), Administrator shall provide the following
services with respect to the Trust:
(a) Preparation and maintenance of the Trust's registration
statement with the Securities and Exchange Commission
("SEC");
(b) Preparation and periodic updating of the prospectus and
statement of additional information for the Fund
("Prospectus");
(c) Preparation, filing with appropriate regulatory authorities,
and dissemination of various reports for the Fund, including
but not limited to semiannual reports to shareholders under
Section 30(d) of the 1940 Act, annual and semiannual reports
on Form N-SAR, and notices pursuant to Rule 24f-2;
(d) Arrangement for all meetings of shareholders, including the
collection of all information required for preparation of
proxy statements, the preparation and filing with appropriate
regulatory agencies of such proxy statements, the supervision
of solicitation of shareholders and shareholder nominees in
connection therewith, tabulation (or supervision of the
tabulation) of votes, response to all inquiries regarding
such meetings from shareholders, the public and the media,
and preparation and retention of all minutes and all other
records required to be kept in connection with such meetings;
(e) Maintenance and retention of all Trust charter documents and
the filing of all documents required to maintain the Trust's
status as a Massachusetts business trust and as a registered
open-end investment company;
(f) Arrangement and preparation and dissemination of all
materials for meetings of the Board of Trustees and
committees thereof and preparation and retention of all
minutes and other records thereof;
(g) Preparation and filing of the Trust's Federal, state, and
local income tax returns and calculation of any tax required
to be paid in connection therewith;
(h) Calculation of all Trust and Fund expenses and arrangement
for the payment thereof;
(i) Calculation of and arrangement for payment of all income,
capital gain, and other distributions to shareholders of each
Fund;
<PAGE> 2
(j) Determination, after consultation with the officers of the
Trust, of the jurisdictions in which shares of beneficial
interest of each Fund ("Shares") shall be registered or
qualified for sale, or may be sold pursuant to an exemption
from such registration or qualification, and preparation and
maintenance of the registration or qualification of the
Shares for sale under the securities laws of each such
jurisdiction;
(k) Provision of the services of persons who may be appointed as
officers of the Trust by the Board of Trustees (it is agreed
that some person or persons may be officers of both the Trust
and the Administrator, and that the existence of any such
dual interest shall not affect the validity of this Agreement
except as otherwise provided by specific provision of
applicable law);
(l) Preparation and, subject to approval of the Trust's Chief
Financial Officer, dissemination of the Trust's and each
Fund's quarterly financial information to the Board of
Trustees and preparation of such other reports relating to
the business and affairs of the Trust and each Fund as the
officers and Board of Trustees may from time to time
reasonably request;
(m) Administration of the Trust's Code of Ethics and periodic
reporting to the Board of Trustees of Trustee and officer
compliance therewith;
(n) Provision of internal legal, accounting, compliance, audit,
and risk management services and periodic reporting to the
Board of Trustees with respect to such services;
(o) Negotiation, administration, and oversight of third party
services to the Trust including, but not limited to, custody,
tax, transfer agency, disaster recovery, audit, and legal
services;
(p) Negotiation and arrangement for insurance desired or required
of the Trust and administering all claims thereunder;
(q) Response to all inquiries by regulatory agencies, the press,
and the general public concerning the business and affairs of
the Trust, including the oversight of all periodic
inspections of the operations of the Trust and its agents by
regulatory authorities and responses to subpoenas and tax
levies;
(r) Handling and resolution of any complaints registered with the
Trust by shareholders, regulatory authorities, and the
general public;
(s) Monitoring legal, tax, regulatory, and industry developments
related to the business affairs of the Trust and
communicating such developments to the officers and Board of
Trustees as they may reasonably request or as the
Administrator believes appropriate;
(t) Administration of operating policies of the Trust and
recommendation to the officers and the Board of Trustees of
the Trust of modifications to such policies to facilitate the
protection of shareholders or market competitiveness of the
Trust and Fund and to the extent necessary to comply with new
legal or regulatory requirements;
(u) Responding to surveys conducted by third parties and
reporting of Fund performance and other portfolio
information; and
(v) Filing of claims, class actions involving portfolio
securities, and handling administrative matters in connection
with the litigation or settlement of such claims.
2. USE OF AFFILIATED COMPANIES AND SUBCONTRACTORS. In
connection with the services to be provided by Administrator
under this Agreement, Administrator may,
<PAGE> 3
to the extent it deems appropriate, and subject to compliance
with the requirements of applicable laws and regulations and upon
receipt of approval of the Trustees, make use of (i) its
affiliated companies and their directors, trustees, officers, and
employees and (ii) subcontractors selected by Administrator,
provided that Administrator shall supervise and remain fully
responsible for the services of all such third parties in
accordance with and to the extent provided by this Agreement.
All costs and expenses associated with services provided by any
such third parties shall be borne by Administrator or such
parties.
3. INSTRUCTIONS, OPINIONS OF COUNSEL, AND SIGNATURES. At
any time Administrator may apply to a duly authorized agent of
Trust for instructions regarding the Trust, and may consult
counsel for the Trust or its own counsel, in respect of any
matter arising in connection with this Agreement, and it shall
not be liable for any action taken or omitted by it in good faith
in accordance with such instructions or with the advice or
opinion of such counsel. Administrator shall be protected in
acting upon any such instruction, advice, or opinion and upon any
other paper or document delivered by the Trust or such counsel
believed by Administrator to be genuine and to have been signed
by the proper person or persons and shall not be held to have
notice of any change of authority of any officer or agent of the
Trust, until receipt of written notice thereof from the Trust.
4. EXPENSES BORNE BY TRUST. Except to the extent expressly
assumed by Administrator herein or under a separate agreement
between the Trust and Administrator and except to the extent
required by law to be paid by Administrator, the Trust shall pay
all costs and expenses incidental to its organization, operations
and business. Without limitation, such costs and expenses shall
include but not be limited to:
(a) All charges of depositories, custodians and other agencies
for the safekeeping and servicing of its cash, securities,
and other property;
(b) All charges for equipment or services used for obtaining
price quotations or for communication between Administrator
or the Trust and the custodian, transfer agent or any other
agent selected by the Trust;
(c) All charges for investment advisory, portfolio management,
and accounting services provided to the Trust by the
Administrator, or any other provider of such services;
(d) All charges for services of the Trust's independent auditors
and for services to the Trust by legal counsel;
(e) All compensation of Trustees, other than those affiliated
with Administrator, all expenses incurred in connection with
their services to the Trust, and all expenses of meetings of
the Trustees or committees thereof;
(f) All expenses incidental to holding meetings of shareholders,
including printing and of supplying each record-date
shareholder with notice and proxy solicitation material, and
all other proxy solicitation expenses;
(g) All expenses of printing of annual or more frequent revisions
of the Trust's prospectus(es) and of supplying each then-
existing shareholder with a copy of a revised prospectus;
(h) All expenses related to preparing and transmitting
certificates representing the Trust's shares;
<PAGE> 4
(i) All expenses of bond and insurance coverage required by law
or deemed advisable by the Board of Trustees;
(j) All brokers' commissions and other normal charges incident to
the purchase, sale, or lending of Fund securities;
(k) All taxes and governmental fees payable to Federal, state or
other governmental agencies, domestic or foreign, including
all stamp or other transfer taxes;
(l) All expenses of registering and maintaining the registration
of the Trust under the 1940 Act and, to the extent no
exemption is available, expenses of registering the Trust's
shares under the 1933 Act, of qualifying and maintaining
qualification of the Trust and of the Trust's shares for sale
under securities laws of various states or other
jurisdictions and of registration and qualification of the
Trust under all other laws applicable to the Trust or its
business activities;
(m) All interest on indebtedness, if any, incurred by the Trust
or a Fund; and
(n) All fees, dues and other expenses incurred by the Trust in
connection with membership of the Trust in any trade
association or other investment company organization.
5. ALLOCATION OF EXPENSES BORNE BY TRUST. Any expenses
borne by the Trust that are attributable solely to the
organization, operation or business of a Fund shall be paid
solely out of Fund assets. Any expense borne by the Trust which
is not solely attributable to a Fund, nor solely to any other
series of shares of the Trust, shall be apportioned in such
manner as Administrator determines is fair and appropriate, or as
otherwise specified by the Board of Trustees.
6. EXPENSES BORNE BY ADMINISTRATOR. Administrator at its
own expense shall furnish all executive and other personnel,
office space, and office facilities required to render the
services set forth in this Agreement. However, Administrator
shall not be required to pay or provide any credit for services
provided by the Trust's custodian or other agents without
additional cost to the Trust.
In the event that Administrator pays or assumes any expenses
of the Trust or a Fund not required to be paid or assumed by
Administrator under this Agreement, Administrator shall not be
obligated hereby to pay or assume the same or similar expense in
the future; provided that nothing contained herein shall be
deemed to relieve Administrator of any obligation to the Trust or
a Fund under any separate agreement or arrangement between the
parties.
7. ADMINISTRATION FEE. For the services rendered,
facilities provided, and charges assumed and paid by
Administrator hereunder, the Trust shall pay to Administrator out
of the assets of each Fund fees at the annual rate for such Fund
as set forth in Schedule B to this Agreement. For each Fund, the
administrative fee shall accrue on each calendar day, and shall
be payable monthly on the first business day of the next
succeeding calendar month. The daily fee accrual shall be
computed by multiplying the fraction of one divided by the number
of days in the calendar year by the applicable annual rate of
fee, and multiplying this product by the net assets of the Fund,
determined in the manner established by the Board of Trustees, as
of the close of business on the last preceding business day on
which the Fund's net asset value was determined.
<PAGE> 5
8. STATE EXPENSE LIMITATION. If for any fiscal year of a
Fund, its aggregate operating expenses ("Aggregate Operating
Expenses") exceed the applicable percentage expense limit imposed
under the securities law and regulations of any state in which
Shares of the Fund are qualified for sale (the "State Expense
Limit"), the Administrator shall pay such Fund the amount of such
excess. For purposes of this State Expense Limit, Aggregate
Operating Expenses shall (a) include (i) any fees or expense
reimbursements payable to Administrator pursuant to this
Agreement and (ii) to the extent the Fund invests all or a
portion of its assets in another investment company registered
under the 1940 Act, the pro rata portion of that company's
operating expenses allocated to the Fund, and (iii) any
compensation payable to Administrator pursuant to any separate
agreement relating to the Fund's investment operations and
portfolio management, but (b) exclude any interest, taxes,
brokerage commissions, and other normal charges incident to the
purchase, sale or loan of securities, commodity interests or
other investments held by the Fund, litigation and
indemnification expense, and other extraordinary expenses not
incurred in the ordinary course of business. Except as otherwise
agreed to by the parties or unless otherwise required by the law
or regulation of any state, any reimbursement by Administrator to
a Fund under this section shall not exceed the administrative fee
payable to Administrator by the Fund under this Agreement.
Any payment to a Fund by Administrator hereunder shall be
made monthly, by annualizing the Aggregate Operating Expenses for
each month as of the last day of the month. An adjustment for
payments made during any fiscal year of the Fund shall be made on
or before the last day of the first month following such fiscal
year of the Fund if the Annual Operating Expenses for such fiscal
year (i) do not exceed the State Expense Limitation or (ii) for
such fiscal year there is no applicable State Expense Limit.
9. NON-EXCLUSIVITY. The services of Administrator to the
Trust hereunder are not to be deemed exclusive and Administrator
shall be free to render similar services to others.
10. STANDARD OF CARE. Neither Administrator, nor any of
its directors, officers or stockholders, agents or employees
shall be liable to the Trust, any Fund, or its shareholders for
any action taken or thing done by it or its subcontractors or
agents on behalf of the Trust or the Fund in carrying out the
terms and provisions of this Agreement if done in good faith and
without negligence or misconduct on the part of Administrator,
its subcontractors, or agents.
11. INDEMNIFICATION. The Trust shall indemnify and hold
Administrator and its controlling persons, if any, harmless from
any and all claims, actions, suits, losses, costs, damages, and
expenses, including reasonable expenses for counsel, incurred by
it in connection with its acceptance of this Agreement, in
connection with any action or omission by it or its agents or
subcontractors in the performance of its duties hereunder to the
Trust, or as a result of acting upon any instruction believed by
it to have been executed by a duly authorized agent of the Trust
or as a result of acting upon information provided by the Trust
in form and under policies agreed to by
<PAGE> 6
Administrator and the Trust, provided that: (i) to the extent
such claims, actions, suits, losses, costs, damages, or expenses
relate solely to a particular Fund or group of Funds, such
indemnification shall be only out of the assets of that Fund or
group of Funds; (ii) this indemnification shall not apply to
actions or omissions constituting negligence or misconduct of
Administrator or its agents or subcontractors, including but not
limited to willful misfeasance, bad faith, or gross negligence in
the performance of their duties, or reckless disregard of their
obligations and duties under this Agreement; and (iii)
Administrator shall give the Trust prompt notice and reasonable
opportunity to defend against any such claim or action in its own
name or in the name of Administrator.
Administrator shall indemnify and hold harmless the Trust
from and against any and all claims, demands, expenses and
liabilities which such Trust may sustain or incur arising out of,
or incurred because of, the negligence or misconduct of
Administrator or its agents or subcontractors, provided that such
Trust shall give Administrator prompt notice and reasonable
opportunity to defend against any such claim or action in its own
name or in the name of such Trust.
12. EFFECTIVE DATE, AMENDMENT, AND TERMINATION. This
Agreement shall become effective as to any Fund as of the
effective date for that Fund specified in Schedule A hereto and,
unless terminated as hereinafter provided, shall remain in effect
with respect to such Fund thereafter from year to year so long as
such continuance is specifically approved with respect to that
Fund at least annually by a majority of the Trustees who are not
interested persons of Trust or Administrator.
As to any Trust or Fund of that Trust, this Agreement may be
modified or amended from time to time by mutual agreement between
the Administrator and the Trust and may be terminated by
Administrator or Trust by at least sixty (60) days' written
notice given by the terminating party to the other party. Upon
termination as to any Fund, the Trust shall pay to Administrator
such compensation as may be due under this Agreement as of the
date of such termination and shall reimburse Administrator for
its costs, expenses, and disbursements payable under this
Agreement to such date. In the event that, in connection with a
termination, a successor to any of the duties or responsibilities
of Administrator hereunder is designated by the Trust by written
notice to Administrator, upon such termination Administrator
shall promptly, and at the expense of the Trust or Fund with
respect to which this Agreement is terminated, transfer to such
successor all relevant books, records, and data established or
maintained by Administrator under this Agreement and shall
cooperate in the transfer of such duties and responsibilities,
including provision, at the expense of such Fund, for assistance
from Administrator personnel in the establishment of books,
records, and other data by such successor.
13. ASSIGNMENT. Any interest of Administrator under this
Agreement shall not be assigned either voluntarily or
involuntarily, by operation of law or otherwise, without the
prior written consent of Trust.
14. BOOKS AND RECORDS. Administrator shall maintain, or
oversee the maintenance by such other persons as may from time to
time be approved by the Board of
<PAGE> 7
Trustees to maintain, the books, documents, records, and data
required to be kept by the Trust under the 1940 Act, the laws of
the Commonwealth of Massachusetts or such other authorities
having jurisdiction over the Trust or the Fund or as may
otherwise be required for the proper operation of the business
and affairs of the Trust or the Fund (other than those required
to be maintained by any investment adviser retained by the Trust
on behalf of a Fund in accordance with Section 15 of the 1940
Act).
Administrator will periodically send to the Trust all books,
documents, records, and data of the Trust and each of its Funds
listed in Schedule A that are no longer needed for current
purposes or required to be retained as set forth herein.
Administrator shall have no liability for loss or destruction of
said books, documents, records, or data after they are returned
to such Trust.
Administrator agrees that all such books, documents,
records, and data which it maintains shall be maintained in
accordance with Rule 31a-3 of the 1940 Act and that any such
items maintained by it shall be the property of the Trust.
Administrator further agrees to surrender promptly to the Trust
any such items it maintains upon request, provided that the
Administrator shall be permitted to retain a copy of all such
items. Administrator agrees to preserve all such items
maintained under Rule 31a-1 for the period prescribed under Rule
31a-2 of the 1940 Act.
Trust shall furnish or otherwise make available to
Administrator such copies of the financial statements, proxy
statements, reports, and other information relating to the
business and affairs of each Fund of the Trust as Administrator
may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
15. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any
obligation of Trust hereunder shall be binding only upon the
assets of Trust (or the applicable Fund thereof) and shall not be
binding upon any Trustee, officer, employee, agent or shareholder
of Trust. Neither the authorization of any action by the
Trustees or shareholders of Trust nor the execution of this
Agreement on behalf of Trust shall impose any liability upon any
Trustee or any shareholder.
16. USE OF ADMINISTRATOR'S NAME. The Trust may use its
name and the names of its Funds listed in Schedule A or any other
name derived from the name "Stein Roe & Farnham" only for so long
as this Agreement or any extension, renewal, or amendment hereof
remains in effect, including any similar agreement with any
organization which shall have succeeded to the business of
Administrator as it relates to the services it has agreed to
furnish under this Agreement. At such time as this Agreement or
any extension, renewal or amendment hereof, or such other similar
agreement shall no longer be in effect, Trust will cease to use
any name derived from the name "Stein Roe & Farnham" or otherwise
connected with Administrator, or with any organization which
shall have succeeded to Administrator's business herein
described.
17. REFERENCES AND HEADINGS. In this Agreement and in any
such amendment, references to this Agreement and all expressions
such as "herein," "hereof," and "hereunder" shall be deemed to
refer to this Agreement as amended or affected by any such
amendments. Headings are placed herein for convenience of
reference only
<PAGE> 8
and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this Agreement. This
Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
Dated: August 15, 1995
STEINROE INVESTMENT TRUST
Attest: By: TIMOTHY K. ARMOUR
Timothy K. Armour
JILAINE HUMMEL BAUER President
Jilaine Hummel Bauer
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Hans P. Ziegler
KEITH J. RUDOLF Chief Executive Officer
Keith J. Rudolf
Secretary
<PAGE> 9
STEIN ROE INVESTMENT TRUST
ADMINISTRATIVE AGREEMENT
SCHEDULE A
The Funds of the Trust currently subject to this Agreement are as
follows:
Effective Date
------------------
Stein Roe Growth & Income Fund September 1, 1995
Stein Roe Young Investor Fund September 1, 1995
Stein Roe Balanced Fund September 1, 1995
Stein Roe Growth Stock Fund September 1, 1995
Stein Roe Capital Opportunities Fund September 1, 1995
Stein Roe Special Fund September 1, 1995
Stein Roe International Fund July 1, 1996
Stein Roe Special Venture Fund July 1, 1996
Dated: July 1, 1996
STEINROE INVESTMENT TRUST
Attest: By: TIMOTHY K. ARMOUR
Timothy K. Armour
JILAINE HUMMEL BAUER President
Jilaine Hummel Bauer
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Hans P. Ziegler
JILAINE HUMMEL BAUER Chief Executive Officer
Jilaine Hummel Bauer
Secretary
<PAGE> 10
STEIN ROE INVESTMENT TRUST
ADMINISTRATIVE AGREEMENT
SCHEDULE B
Compensation pursuant to Section 7 of this Agreement shall be
calculated with respect to each Fund in accordance with the
following schedule applicable to average daily net assets of the
Fund:
Fund Administrative Fee Schedule B1
Stein Roe Young Investor Fund 0.200% of first $500 million,
0.150% of next $500 million,
0.125% thereafter
Fund Administrative Fee Schedule B2
Stein Roe Growth Stock Fund 0.150% of first $500 million,
Stein Roe Growth & Income Fund 0.125 of next $500 million,
Stein Roe Balanced Fund 0.100% thereafter
Fund Administrative Fee Schedule B3
Stein Roe Special Fund 0.150% of first $500 million,
Stein Roe Capital Opportuni- 0.125% of next $500 million,
ties Fund 0.100% of next $500 million,
0.075% thereafter
Fund Administrative Fee Schedule B4
Stein Roe International Fund 0.150%
Stein Roe Special Venture Fund
Dated: July 1, 1996
STEINROE INVESTMENT TRUST
Attest: By: TIMOTHY K. ARMOUR
Timothy K. Armour
JILAINE HUMMEL BAUER President
Jilaine Hummel Bauer
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Hans P. Ziegler
JILAINE HUMMEL BAUER Chief Executive Officer
Jilaine Hummel Bauer
Secretary
EXHIBIT 10(a)
<PAGE>
ROPES & GRAY
225 Franklin Street
Boston, Massachusetts 02110
(617) 423-6100
February 27, 1987
SteinRoe Equity Portfolio
P.O. Box 1162
Chicago, Illinois 60690
Gentlemen:
We are furnishing this opinion with respect to the proposed
offer and sale from time to time of an indefinite number of shares
of beneficial interest (the "Shares") of SteinRoe Prime Equities
(the "Portfolio"), a series of SteinRoe Equity Trust (the "Trust")
being registered under the Securities Act of 1933 by a
Registration Statement on Form N-1A.
We have acted as Massachusetts counsel for the Trust in
connection with its organization and are familiar with the action
taken by its trustees to authorize the issuance of the Shares. We
have examined its by-laws and its Agreement and Declaration of
Trust on file at the Office of the Secretary of the Commonwealth
of Massachusetts and we have also examined such other documents as
we deem necessary for the purpose of this opinion.
We assume that appropriate action will be taken to register
or qualify the sale of the Shares under any applicable state and
federal laws regulating sales and offerings of securities and that
upon sales of the Shares the Portfolio will receive the net asset
value thereof.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a legally organized and validly existing
unincorporated voluntary association under the laws of The
Commonwealth of Massachusetts which, unless terminated as provided
in its Agreement and Declaration of Trust, shall continue in
existence without limitation of time.
2. The Portfolio is authorized to issue an unlimited number
of Shares and upon the issue of any thereof at net asset value and
receipt by the Portfolio of the authorized consideration therefor,
the Shares so issued will be validly issued, fully paid and
nonassessable by the Portfolio (although shareholders of the
Portfolio may be subject to liability under certain circumstances
as described in the Prospectus included in the Registration
Statement of the Trust referred to above under the caption
"Organization and Description of Shares").
3. Under Massachusetts law, shareholders of the Trust will
not be liable personally for contract claims made under any
agreement, obligation or undertaking governed by Massachusetts law
and containing a disclaimer of such liability or when adequate
notice is otherwise given.
We consent to the filing of this opinion with and as part of
the Registration Statement of the Trust referred to above.
Very truly yours,
ROPES & GRAY
<PAGE>
ROPES & GRAY
225 Franklin Street
Boston, Massachusetts 02110
(617) 423-6100
December 1, 1987
SteinRoe Equity Portfolio
P.O. Box 1162
Chicago, Illinois 60690
Gentlemen:
We are furnishing this opinion with respect to the proposed
offer and sale from time to time of an indefinite number of shares
of beneficial interest (the "Shares") of SteinRoe Discovery Fund,
SteinRoe Universe Fund, SteinRoe Capitol Opportunities Fund,
SteinRoe Special Fund, SteinRoe Stock Fund and SteinRoe Total
Return Fund (each a "Portfolio"), each a series of SteinRoe Equity
Trust (the "Trust") being registered under the Securities Act of
1933 by a Post-Effective Amendment to the Registration Statement
of the Trust on Form N-1A.
We have acted as Massachusetts counsel for the Trust in
connection with its organization and are familiar with the action
taken by its trustees to authorize the issuance of the Shares. We
have examined its by-laws and its Agreement and Declaration of
Trust on file at the Office of the Secretary of the Commonwealth
of Massachusetts and we have also examined such other documents as
we deem necessary for the purpose of this opinion.
We assume that appropriate action will be taken to register
or qualify the sale of the Shares under any applicable state and
federal laws regulating sales and offerings of securities and that
upon sales of the Shares the Portfolio issuing the Shares will
receive the net asset value thereof.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a legally organized and validly existing
unincorporated voluntary association under the laws of The
Commonwealth of Massachusetts which, unless terminated as provided
in its Agreement and Declaration of Trust, shall continue in
existence without limitation of time.
2. Each Portfolio is authorized to issue an unlimited number
of Shares and upon the issue of any thereof at net asset value and
receipt by the Portfolio issuing the Shares of the authorized
consideration therefor, the Shares so issued will be validly
issued, fully paid and nonassessable by the Portfolio (although
shareholders of the Portfolio may be subject to liability under
certain circumstances as described in the Prospectus included in
the Post-Effective Amendment to the Registration Statement of the
Trust referred to above under the caption "Organization and
Description of Shares").
3. Under Massachusetts law, shareholders of the Trust will
not be liable personally for contract claims made under any
agreement, obligation or undertaking governed by Massachusetts law
and containing a disclaimer of such liability or when adequate
notice is otherwise given.
We consent to the filing of this opinion with and as part of
the Post-Effective Amendment to the Registration Statement of the
Trust referred to above.
Very truly yours,
ROPES & GRAY
EXHIBIT 10(b)
<PAGE>
BELL, BOYD & LLOYD
a partnership including professional corporations
Three First National Plaza, Suite 3200
70 West Madison Street
Chicago, Illinois 60602
Telephone (312) 372-1121
TWX/Telex (910) 221-1220
March 3, 1987
SteinRoe Equity Portfolio
P.O. Box 1162
Chicago, Illinois 60690
Ladies and Gentlemen:
Shares of Beneficial Interest
Without Par Value
-----------------------------
We have acted as counsel for SteinRoe Equity Portfolio
(Trust) in connection with the registration under the
Securities Act of 1933 (Act) of an indefinite number of
shares of beneficial interest, without par value (Shares), of
SteinRoe Prime Equities (Portfolio), a series of the Trust in
the Trust's registration statement no. 33-11351 on form N-1A
(Registration Statement). In this connection we have
examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, records,
certificates and other papers as we deemed it necessary to
examine for the purpose of this opinion, including the
Agreement and Declaration of Trust (Trust Agreement) and
bylaws of the Trust, actions of the board of trustees of the
Trust authorizing the issuance of Shares, in form of
certificates to evidence the Shares, and the Registration
Statement.
Based on the foregoing examination, we are of the
opinion that:
1. The Trust is an unincorporated voluntary
association legally organized and validly existing udner
the laws of the Commonwealth of Massachusetts.
2. Upon the issuance and delivery of the Shares in
accordance with the Trust and the actions of the
trustees authorizing the issuance of the Shares, and the
receipt by the Trust of the authorized consideration
therefor, the Shares so issued will be validly issued
and outstanding, fully paid and nonassessable (although
shareholders of the Portfolio may be subject to
liability under certain circumstances as described in
the prospectus of the Trust (included as Part A of the
Registration Statement) under the caption "Organization
and Description of Shares").
In giving this opinion we have relied upon the opinion
of Ropes & Gray to you dated February 27, 1987.
We consent to the filing of this opinion as an exhibit
to the registration statement. In giving this consent, we do
not admit that we are in the category of persons whose
consent is required under section 7 of the Act.
Very truly yours,
BELL, BOYD & LLOYD
CSA gf
<PAGE>
BELL, BOYD & LLOYD
a partnership including professional corporations
Three First National Plaza, Suite 3200
70 West Madison Street
Chicago, Illinois 60602
Telephone (312) 372-1121
TWX/Telex (910) 221-1220
December 20, 1987
SteinRoe Equity Portfolio
P.O. Box 1162
Chicago, Illinois 60690
Ladies and Gentlemen:
Shares of Beneficial Interest
Without Par Value
-----------------------------
We have acted as counsel for SteinRoe Equity Portfolio
(Trust) in connection with the registration under the
Securities Act of 1933 (Act) of an indefinite number of
shares of beneficial interest, without par value, of each of
the following series of the Trust (Series):
SteinRoe Capital Opportunities Fund
SteinRoe Discovery Fund
SteinRoe Special Fund
SteinRoe Stock Fund
SteinRoe Total Return Fund
SteinRoe Universe Fund
in the Trust's registration statement no. 33-11351 on form N-
1A (Registration Statement).
In this connection we have examined originals, or copies
certified or otherwise identified to our satisfaction, of
such documents, records, certificates and other papers as we
deemed it necessary to examine for the purpose of this
opinion, including the Agreement and Declaration of Trust
(Trust Agreement) and bylaws of the Trust, actions of the
board of trustees of the Trust authorizing the issuance of
shares of the respective Series, the form of certificates to
evidence such shares, and the Registration Statement.
Based on the foregoing examination, we are of the
opinion that:
1. The Trust is an unincorporated voluntary
association legally organized and validly existing under
the laws of the Commonwealth of Massachusetts.
2. Upon the issuance and delivery of the shares of
each Series in accordance with the Trust and the actions
of the trustees authorizing the issuance of such shares,
and the receipt by the Trust of the authorized
consideration therefor, the shares so issued will be
validly issued and outstanding, fully paid and
nonassessable (although shareholders of such Series may
be subject to liability under certain circumstances as
described in the prospectus of the Trust included as
Part A of the Registration Statement under the caption
"Organization and Description of Shares").
In giving this opinion we have relied upon the opinion
of Ropes & Gray to you dated December 1, 1987.
We consent to the filing of this opinion as an exhibit
to the registration statement. In giving this consent, we do
not admit that we are in the category of persons whose
consent is required under section 7 of the Act.
Very truly yours,
BELL, BOYD & LLOYD
CSA gf
<PAGE>
BELL, BOYD & LLOYD
Three First National Plaza
70 West Madison Street, Suite 3200
Chicago, Illinois 60602-4207
312 372-1121
FAX 312 372-2098
January 28, 1994
SteinRoe Investment Trust
300 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
SteinRoe International Fund
---------------------------
We have acted as counsel for SteinRoe Investment Trust,
a Massachusetts business trust (the "Trust"), in connection
with the registration under the Securities Act of 1933 (the
"Act") of an indefinite number of shares of beneficial
interest (the "Shares"), of the series of the Trust
designated SteinRoe International Fund (the "Fund") pursuant
to the Trust's registration statement no. 33-11351 on form N-
1A (the "Registration Statement"). In this connection, we
have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, corporate
and other records, certificates and other papers as we deemed
it necessary to examine for the purpose of this opinion,
including the agreement and declaration of trust and bylaws
of the Trust, resolutions of the board of trustees
authorizing the issuance of the Shares and the Registration
Statement.
Based on the foregoing examination, we are of the
opinion that:
1. The Trust is a business trust duly organized and
legally existing under the laws of Massachusetts.
2. Upon the issuance and delivery of the Shares in
accordance with the agreement and declaration of trust
and by-laws of the Trust and the resolutions of the
board of trustees authorizing the issuance of the Shares
and the receipt by the Fund of a purchase price equal to
the net asset value thereof, the Shares will be validly
issued, fully paid and nonassessable by the Trust.
Under Massachusetts law, shareholders of the Trust
could, under certain circumstances, be held personally liable
for the obligations of the Trust. However, the agreement and
declaration of trust of the Trust disclaims shareholder
liability for acts or obligations of the Trust and requires
that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the
Trust or the trustees. The agreement and declaration of
trust provides for indemnification out of the Trust's
property for all loss and expense of any shareholder held
personally liable solely by reason of being or having been a
shareholder. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited
to circumstances in which the Trust itself would be unable to
meet its obligations.
We consent to the filing of this opinion as an exhibit
to the Registration Statement. In giving this consent, we do
not admit that we are in the category of persons whose
consent is required under section 7 of the Act.
Very truly yours,
BELL, BOYD & LLOYD
<PAGE>
BELL, BOYD & LLOYD
Three First National Plaza
70 West Madison Street, Suite 3200
Chicago, Illinois 60602-4207
312 372-1121
FAX 312 372-2098
February 17, 1994
SteinRoe Investment Trust
300 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
SteinRoe Young Investor Fund
----------------------------
We have acted as counsel for SteinRoe Investment Trust,
a Massachusetts business trust (the "Trust"), in connection
with the registration under the Securities Act of 1933 (the
"Act") of an indefinite number of shares of beneficial
interest (the "Shares"), of the series of the Trust
designated SteinRoe Young Investor Fund (the "Fund") pursuant
to the Trust's registration statement no. 33-11351 on form N-
1A (the "Registration Statement"). In this connection, we
have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, corporate
and other records, certificates and other papers as we deemed
it necessary to examine for the purpose of this opinion,
including the agreement and declaration of trust and bylaws
of the Trust, resolutions of the board of trustees
authorizing the issuance of the Shares and the Registration
Statement.
Based on the foregoing examination, we are of the
opinion that:
1. The Trust is a business trust duly organized and
legally existing under the laws of Massachusetts.
2. Upon the issuance and delivery of the Shares in
accordance with the agreement and declaration of trust
and by-laws of the Trust and the resolutions of the
board of trustees authorizing the issuance of the Shares
and the receipt by the Fund of a purchase price equal to
the net asset value thereof, the Shares will be validly
issued, fully paid and nonassessable by the Trust.
Under Massachusetts law, shareholders of the Trust
could, under certain circumstances, be held personally liable
for the obligations of the Trust. However, the agreement and
declaration of trust of the Trust disclaims shareholder
liability for acts or obligations of the Trust and requires
that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the
Trust or the trustees. The agreement and declaration of
trust provides for indemnification out of the Trust's
property for all loss and expense of any shareholder held
personally liable solely by reason of being or having been a
shareholder. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited
to circumstances in which the Trust itself would be unable to
meet its obligations.
We consent to the filing of this opinion as an exhibit
to the Registration Statement. In giving this consent, we do
not admit that we are in the category of persons whose
consent is required under section 7 of the Act.
Very truly yours,
BELL, BOYD & LLOYD
<PAGE>
BELL, BOYD & LLOYD
Three First National Plaza
70 West Madison Street, Suite 3200
Chicago, Illinois 60602-4207
312 372-1121
FAX 312 372-2098
October 11, 1994
SteinRoe Investment Trust
300 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
SteinRoe Special Venture Fund
-----------------------------
We have acted as counsel for SteinRoe Investment Trust,
a Massachusetts business trust (the "Trust"), in connection
with the registration under the Securities Act of 1933 (the
"Act") of an indefinite number of shares of beneficial
interest (the "Shares"), of the series of the Trust
designated SteinRoe Special Venture Fund (the "Fund")
pursuant to the Trust's registration statement no. 33-11351
on form N-1A (the "Registration Statement"). In this
connection, we have examined originals, or copies certified
or otherwise identified to our satisfaction, of such
documents, corporate and other records, certificates and
other papers as we deemed it necessary to examine for the
purpose of this opinion, including the agreement and
declaration of trust and bylaws of the Trust, resolutions of
the board of trustees authorizing the issuance of the Shares,
and the Registration Statement.
Based on the foregoing examination, we are of the
opinion that:
1. The Trust is a business trust duly organized and
legally existing under the laws of Massachusetts.
2. Upon the issuance and delivery of the Shares in
accordance with the agreement and declaration of trust
and by-laws of the Trust and the resolutions of the
board of trustees authorizing the issuance of the
Shares, and the receipt by the Fund of a purchase price
equal to the net asset value thereof, the Shares will be
validly issued, fully paid and nonassessable by the
Trust.
Under Massachusetts law, shareholders of the Trust
could, under certain circumstances, be held personally liable
for the obligations of the Trust. However, the agreement and
declaration of trust of the Trust disclaims shareholder
liability for acts or obligations of the Trust and requires
that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the
Trust or the trustees. The agreement and declaration of
trust provides for indemnification out of the Trust's
property for all loss and expense of any shareholder held
personally liable solely by reason of being or having been a
shareholder. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited
to circumstances in which the Trust itself would be unable to
meet its obligations.
We consent to the filing of this opinion as an exhibit
to the Registration Statement. In giving this consent, we do
not admit that we are in the category of persons whose
consent is required under section 7 of the Act.
Very truly yours,
BELL, BOYD & LLOYD
Exhibit 11(a)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of
our report dated November 21, 1995, and to all references to our
firm included in or made a part of this Registration Statement on
Form N-1A of the Stein Roe Investment Trust (comprising the Stein
Roe Growth & Income Fund, Stein Roe Balanced Fund, Stein Roe Growth
Stock Fund, Stein Roe International Fund, Stein Roe Special Fund,
Stein Roe Capital Opportunities Fund and Stein Roe Special Venture
Fund).
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 20, 1996
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of
our report dated November 10, 1995, and to all references to our
firm included in or made a part of this Registration Statement on
Form N-1A of the Stein Roe Investment Trust (comprising the Stein
Roe Young Investor Fund).
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 20, 1996
<PAGE>
EXHIBIT 11(b)
CONSENT
We hereby consent to the use of the name Morningstar, Inc.
and to the inclusion or reference of any Morningstar, Inc.
mutual fund ratings, rankings and other information in or
made a part of the Registration Statement of the SteinRoe
Investment Trust on Form N-1A or in any advertisement under
Rule 482 under the Securities Act of 1933.
1/16/92 [SIGNATURE OF PRESIDENT]
Date Signature
President
Title
<PAGE>
EXHIBIT 16
PRIME EQUITIES
As of September 30, 1987
Initial
Investment TOTAL
Total Return Date DIST +/- APP (DEPR) = RETURN + PRINC = ERV
- ------------- ------------ -------- ------------ ------- ------ -----
Inception 3/24/87 $3.00 49.03 52.03 1,000.00 1,052.03
- -------------------------------------------------------------------------------
Initial TR%
Total Return Investment
Percentage Date ERV PRINC (ERV/PRINC)-1
- ------------- ------------ ------ ------ -------------
Inception 3/24/87 1,052.03 $1,000.00 5.20%
- ---------------------------------------------------------------------------
Average Initial AATR%
Annual Total Investment n
Return % Date P T n P(1+T) = ERV
- ------------ ----------- ---------- --------- ------ -------------
Inception 3/24/87 $1,000.00 5.20% 1 $1,052.03
- ---------------------------------------------------------------------------
<PAGE>
TOTAL RETURN FUND
As of December 31, 1987
Initial
Investment TOTAL
Total Return Date DIST +/- APP (DEPR) = RETURN + PRINC = ERV
- ------------- ---------- ---------- ------------ ------- -------- -------
1 Year 12/31/86 $128.50 (121.11) 7.39 1,000.00 1,007.39
5 Year 12/31/82 $781.78 (15.66) 766.12 1,000.00 1,766.12
10 Year 12/31/77 $1,695.58 311.49 2,007.07 1,000.00 3,007.07
- --------------------------------------------------------------------------------
Initial TR%
Total Return Investment
Percentage Date ERV PRINC (ERV/PRINC)-1
- ------------- ------------ ------ ------ -------------
1 Year 12/31/86 1,007.39 $1,000.00 0.74%
5 Year 12/31/82 1,766.12 $1,000.00 76.61%
10 Year 12/31/77 3,007.07 $1,000.00 200.71%
- ------------------------------------------------------------------------------
Average Initial AATR%
Annual Total Investment n
Return % Date P T n P(1+T) = ERV
- ------------ ----------- ---------- --------- ------ -------------
1 Year 12/31/86 $1,000.00 0.74% 1 $1,007.39
5 Year 12/31/82 $1,000.00 12.05% 5 $1,766.12
10 Year 12/31/77 $1,000.00 11.64% 10 $3,007.07
- ------------------------------------------------------------------------------
<PAGE>
STOCK FUND
As of December 31, 1987
Initial
Investment TOTAL
Total Return Date DIST +/- APP (DEPR) = RETURN + PRINC = ERV
- ------------- ---------- ---------- ------------ ------- -------- ------
1 Year 12/31/86 $183.72 (128.00) 55.72 1,000.00 1,055.72
5 Year 12/31/82 $920.66 (333.35) 587.31 1,000.00 1,587.31
10 Year 12/31/77 $2,804.11 68.01 2,872.12 1,000.00 3,872.12
- --------------------------------------------------------------------------------
Initial TR%
Total Return Investment
Percentage Date ERV PRINC (ERV/PRINC)-1
- ------------- ------------ ------ ------ -------------
1 Year 12/31/86 1,055.72 $1,000.00 5.57%
5 Year 12/31/82 1,587.31 $1,000.00 58.73%
10 Year 12/31/77 3,872.12 $1,000.00 287.21%
- -------------------------------------------------------------------------
Average Initial AATR%
Annual Total Investment n
Return % Date P T n P(1+T) = ERV
- ------------ ----------- ---------- --------- ------ -------------
1 Year 12/31/86 $1,000.00 5.57% 1 $1,055.72
5 Year 12/31/82 $1,000.00 9.68% 5 $1,587.31
10 Year 12/31/77 $1,000.00 14.50% 10 $3,872.12
- ---------------------------------------------------------------------------
<PAGE>
CAPITAL OPPORTUNITIES FUND
As of December 31, 1987
Initial
Investment TOTAL
Total Return Date DIST +/- APP (DEPR) = RETURN + PRINC = ERV
- ------------- ---------- ---------- ------------ ------- -------- -------
1 Year 12/31/86 $262.55 (168.77) 93.78 1,000.00 1,093.78
5 Year 12/31/82 $567.37 (91.02) 476.35 1,000.00 1,476.35
10 Year 12/31/77 $2,417.42 1,545.91 3,963.33 1,000.00 4,963.33
- --------------------------------------------------------------------------------
Initial TR%
Total Return Investment
Percentage Date ERV PRINC (ERV/PRINC)-1
- ------------- ------------ ------ ------ -------------
1 Year 12/31/86 1,093.78 $1,000.00 9.38%
5 Year 12/31/82 1,476.35 $1,000.00 47.64%
10 Year 12/31/77 4,963.33 $1,000.00 396.33%
- ---------------------------------------------------------------------------
Average Initial
Annual Total Investment n
Return % Date P T n P(1+T) = ERV
- ------------ ----------- ---------- --------- ------ -------------
1 Year 12/31/86 $1,000.00 9.38% 1 $1,093.78
5 Year 12/31/82 $1,000.00 8.10% 5 $1,476.35
10 Year 12/31/77 $1,000.00 17.38% 10 $4,963.33
- ---------------------------------------------------------------------------
<PAGE>
SPECIAL FUND
As of December 31, 1987
Initial
Investment TOTAL
Total Return Date DIST +/- APP (DEPR) = RETURN + PRINC = ERV
- ------------- ---------- ---------- ------------ ------- -------- --------
1 Year 12/31/86 $282.39 (239.68) 42.71 1,000.00 1,042.71
5 Year 12/31/82 $1,262.37 (221.72) 1,040.66 1,000.00 2,040.66
10 Year 12/31/77 $4,358.65 584.46 4,943.11 1,000.00 5,943.11
- --------------------------------------------------------------------------------
Initial TR%
Total Return Investment
Percentage Date ERV PRINC (ERV/PRINC)-1
- ------------- ------------ ------ ------ -------------
1 Year 12/31/86 1,042.71 $1,000.00 4.27%
5 Year 12/31/82 2,040.66 $1,000.00 104.07%
10 Year 12/31/77 5,943.11 $1,000.00 494.31%
- ---------------------------------------------------------------------------
Average Initial AATR%
Annual Total Investment n
Return % Date P T n P(1+T) = ERV
- ------------ ----------- ---------- --------- ------ -------------
1 Year 12/31/86 $1,000.00 4.27% 1 $1,042.71
5 Year 12/31/82 $1,000.00 15.33% 5 $2,040.66
10 Year 12/31/77 $1,000.00 19.51% 10 $5,943.11
- ----------------------------------------------------------------------------
<PAGE>
SteinRoe Young Investor Fund
SteinRoe International Fund
Total Return As of September 30, 1994
<TABLE>
<CAPTION>
Initial
Investment Total
Total Return Date Distributions +/- Appr/Depr = Return + Principal = ERV (ERV/Princ)-1
- -------------- ---------- ------------- --------- ------ --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Young Investor
Fund 4/29/94 $0 $24 $24 $1,000 $1,024 2.40%
International
Fund 3/1/94 0 61 61 1,000 1,061 6.10%
</TABLE>
Average Annual n
Total Return P T n P(1+T) = ERV
- --------------- ------ ------- ------- ------- ---
Young Investor
Fund 4/29/94 1,000 2.40% 1 1,024
International
Fund 3/1/94 1,000 6.10% 1 1,061
<PAGE>
SteinRoe Special Venture Fund
Total Return As of September 30, 1995
<TABLE>
<CAPTION>
Initial
Investment Total
Total Return Date Distributions +/- Appr/Depr = Return + Principal = ERV (ERV/Princ)-1
- -------------- ---------- ------------- --------- ------ --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Special Venture
Fund 10/17/94 $8 $262 $270 $1,000 $1,270 26.96%
</TABLE>
Average Annual n
Total Return P T n P(1+T) = ERV
- --------------- ------ ------- ------- ------- ---
Special Venture
Fund 10/17/94 1,000 28.20% 0.9562 $1,270
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEIN ROE GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 122,899
<INVESTMENTS-AT-VALUE> 165,642
<RECEIVABLES> 584
<ASSETS-OTHER> 235
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 166,461
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 323
<TOTAL-LIABILITIES> 323
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119,019
<SHARES-COMMON-STOCK> 9,748
<SHARES-COMMON-PRIOR> 8,381
<ACCUMULATED-NII-CURRENT> 263
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,408
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,448
<NET-ASSETS> 166,138
<DIVIDEND-INCOME> 1,190
<INTEREST-INCOME> 942
<OTHER-INCOME> 0
<EXPENSES-NET> 872
<NET-INVESTMENT-INCOME> 1,260
<REALIZED-GAINS-CURRENT> 5,020
<APPREC-INCREASE-CURRENT> 12,162
<NET-CHANGE-FROM-OPS> 18,442
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,939)
<DISTRIBUTIONS-OF-GAINS> (12,376)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,530
<NUMBER-OF-SHARES-REDEEMED> (961)
<SHARES-REINVESTED> 798
<NET-CHANGE-IN-ASSETS> 26,599
<ACCUMULATED-NII-PRIOR> 942
<ACCUMULATED-GAINS-PRIOR> 11,763
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 450
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 872
<AVERAGE-NET-ASSETS> 151,562
<PER-SHARE-NAV-BEGIN> 16.65
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> 1.90
<PER-SHARE-DIVIDEND> (.22)
<PER-SHARE-DISTRIBUTIONS> (1.43)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.04
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> STEIN ROE TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 187,884
<INVESTMENTS-AT-VALUE> 232,309
<RECEIVABLES> 2,244
<ASSETS-OTHER> 140
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 234,693
<PAYABLE-FOR-SECURITIES> 2,573
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 525
<TOTAL-LIABILITIES> 3,098
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 174,319
<SHARES-COMMON-STOCK> 7,911
<SHARES-COMMON-PRIOR> 8,217
<ACCUMULATED-NII-CURRENT> 616
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,235
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44,425
<NET-ASSETS> 231,595
<DIVIDEND-INCOME> 2,614
<INTEREST-INCOME> 2,602
<OTHER-INCOME> 0
<EXPENSES-NET> 1,188
<NET-INVESTMENT-INCOME> 4,028
<REALIZED-GAINS-CURRENT> 13,204
<APPREC-INCREASE-CURRENT> 4,748
<NET-CHANGE-FROM-OPS> 21,980
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,592)
<DISTRIBUTIONS-OF-GAINS> (5,662)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 380
<NUMBER-OF-SHARES-REDEEMED> (996)
<SHARES-REINVESTED> 310
<NET-CHANGE-IN-ASSETS> 3,035
<ACCUMULATED-NII-PRIOR> 1,180
<ACCUMULATED-GAINS-PRIOR> 4,693
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 619
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,188
<AVERAGE-NET-ASSETS> 227,520
<PER-SHARE-NAV-BEGIN> 27.82
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> 2.21
<PER-SHARE-DIVIDEND> (.57)
<PER-SHARE-DISTRIBUTIONS> (.70)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 29.27
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> STEIN ROE GROWTH STOCK FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 262,165
<INVESTMENTS-AT-VALUE> 391,759
<RECEIVABLES> 499
<ASSETS-OTHER> 344
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 392,602
<PAYABLE-FOR-SECURITIES> 2,284
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 838
<TOTAL-LIABILITIES> 3,122
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233,883
<SHARES-COMMON-STOCK> 14,848
<SHARES-COMMON-PRIOR> 13,790
<ACCUMULATED-NII-CURRENT> 400
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25,603
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 129,594
<NET-ASSETS> 389,480
<DIVIDEND-INCOME> 1,968
<INTEREST-INCOME> 721
<OTHER-INCOME> 0
<EXPENSES-NET> 2,011
<NET-INVESTMENT-INCOME> 678
<REALIZED-GAINS-CURRENT> 27,176
<APPREC-INCREASE-CURRENT> 8,803
<NET-CHANGE-FROM-OPS> 36,657
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,400)
<DISTRIBUTIONS-OF-GAINS> (32,877)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,237
<NUMBER-OF-SHARES-REDEEMED> (1,392)
<SHARES-REINVESTED> 1,213
<NET-CHANGE-IN-ASSETS> 29,144
<ACCUMULATED-NII-PRIOR> 1,122
<ACCUMULATED-GAINS-PRIOR> 31,304
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,113
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,011
<AVERAGE-NET-ASSETS> 375,123
<PER-SHARE-NAV-BEGIN> 26.13
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 2.49
<PER-SHARE-DIVIDEND> (.10)
<PER-SHARE-DISTRIBUTIONS> (2.33)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.23
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> STEIN ROE CAPITAL OPPORTUNITIES FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 553,365
<INVESTMENTS-AT-VALUE> 725,698
<RECEIVABLES> 12,937
<ASSETS-OTHER> 4,833
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 743,468
<PAYABLE-FOR-SECURITIES> 46,541
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 846
<TOTAL-LIABILITIES> 47,387
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 518,309
<SHARES-COMMON-STOCK> 26,184
<SHARES-COMMON-PRIOR> 11,173
<ACCUMULATED-NII-CURRENT> (445)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,884
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 172,333
<NET-ASSETS> 696,081
<DIVIDEND-INCOME> 292
<INTEREST-INCOME> 1,522
<OTHER-INCOME> 0
<EXPENSES-NET> 2,206
<NET-INVESTMENT-INCOME> (392)
<REALIZED-GAINS-CURRENT> 5,883
<APPREC-INCREASE-CURRENT> 91,698
<NET-CHANGE-FROM-OPS> 97,189
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (150)
<DISTRIBUTIONS-OF-GAINS> (12,960)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,655
<NUMBER-OF-SHARES-REDEEMED> (4,177)
<SHARES-REINVESTED> 533
<NET-CHANGE-IN-ASSETS> 453,700
<ACCUMULATED-NII-PRIOR> 97
<ACCUMULATED-GAINS-PRIOR> 12,961
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,342
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,206
<AVERAGE-NET-ASSETS> 362,910
<PER-SHARE-NAV-BEGIN> 21.69
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 5.90
<PER-SHARE-DIVIDEND> (.01)
<PER-SHARE-DISTRIBUTIONS> (.99)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.58
<EXPENSE-RATIO> 1.23
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> STEIN ROE SPECIAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 807,788
<INVESTMENTS-AT-VALUE> 1,126,727
<RECEIVABLES> 9,367
<ASSETS-OTHER> 1,381
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,137,475
<PAYABLE-FOR-SECURITIES> 10,864
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,532
<TOTAL-LIABILITIES> 14,396
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 754,881
<SHARES-COMMON-STOCK> 44,183
<SHARES-COMMON-PRIOR> 47,569
<ACCUMULATED-NII-CURRENT> 474
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 48,424
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 319,300
<NET-ASSETS> 1,123,079
<DIVIDEND-INCOME> 5,322
<INTEREST-INCOME> 1,991
<OTHER-INCOME> 0
<EXPENSES-NET> 6,656
<NET-INVESTMENT-INCOME> 657
<REALIZED-GAINS-CURRENT> 58,730
<APPREC-INCREASE-CURRENT> 39,442
<NET-CHANGE-FROM-OPS> 98,829
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,825)
<DISTRIBUTIONS-OF-GAINS> (85,187)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,897
<NUMBER-OF-SHARES-REDEEMED> (9,915)
<SHARES-REINVESTED> 3,632
<NET-CHANGE-IN-ASSETS> (78,390)
<ACCUMULATED-NII-PRIOR> 4,642
<ACCUMULATED-GAINS-PRIOR> 74,786
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,006
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,656
<AVERAGE-NET-ASSETS> 1,130,858
<PER-SHARE-NAV-BEGIN> 25.26
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 2.16
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (1.91)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.42
<EXPENSE-RATIO> 1.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> STEIN ROE INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 108,422
<INVESTMENTS-AT-VALUE> 114,799
<RECEIVABLES> 1,879
<ASSETS-OTHER> 244
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 116,922
<PAYABLE-FOR-SECURITIES> 2,786
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 246
<TOTAL-LIABILITIES> 3,032
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 108,776
<SHARES-COMMON-STOCK> 10,795
<SHARES-COMMON-PRIOR> 7,750
<ACCUMULATED-NII-CURRENT> (13)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,248)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,375
<NET-ASSETS> 113,890
<DIVIDEND-INCOME> 581
<INTEREST-INCOME> 296
<OTHER-INCOME> 0
<EXPENSES-NET> 714
<NET-INVESTMENT-INCOME> 163
<REALIZED-GAINS-CURRENT> 723
<APPREC-INCREASE-CURRENT> 3,634
<NET-CHANGE-FROM-OPS> 4,357
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,075)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,493
<NUMBER-OF-SHARES-REDEEMED> (875)
<SHARES-REINVESTED> 77
<NET-CHANGE-IN-ASSETS> 30,870
<ACCUMULATED-NII-PRIOR> 865
<ACCUMULATED-GAINS-PRIOR> (1,936)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 460
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 714
<AVERAGE-NET-ASSETS> 93,066
<PER-SHARE-NAV-BEGIN> 10.25
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> .41
<PER-SHARE-DIVIDEND> (.12)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> STEIN ROE YOUNG INVESTOR FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 58,900
<INVESTMENTS-AT-VALUE> 68,537
<RECEIVABLES> 514
<ASSETS-OTHER> 243
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,294
<PAYABLE-FOR-SECURITIES> 921
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62
<TOTAL-LIABILITIES> 983
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,037
<SHARES-COMMON-STOCK> 4,342
<SHARES-COMMON-PRIOR> 1,465
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,637
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,637
<NET-ASSETS> 68,311
<DIVIDEND-INCOME> 207
<INTEREST-INCOME> 144
<OTHER-INCOME> 0
<EXPENSES-NET> 246
<NET-INVESTMENT-INCOME> 105
<REALIZED-GAINS-CURRENT> 2,683
<APPREC-INCREASE-CURRENT> 4,116
<NET-CHANGE-FROM-OPS> 6,904
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (125)
<DISTRIBUTIONS-OF-GAINS> (1,383)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,175
<NUMBER-OF-SHARES-REDEEMED> (135)
<SHARES-REINVESTED> 105
<NET-CHANGE-IN-ASSETS> 36,910
<ACCUMULATED-NII-PRIOR> 20
<ACCUMULATED-GAINS-PRIOR> 1,337
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 134
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 246
<AVERAGE-NET-ASSETS> 45,166
<PER-SHARE-NAV-BEGIN> 14.29
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.96
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> (.51)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.73
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> STEIN ROE SPECIAL VENTURE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 79,826
<INVESTMENTS-AT-VALUE> 95,566
<RECEIVABLES> 1,313
<ASSETS-OTHER> 110
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 96,989
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 192
<TOTAL-LIABILITIES> 192
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,959
<SHARES-COMMON-STOCK> 7,103
<SHARES-COMMON-PRIOR> 4,806
<ACCUMULATED-NII-CURRENT> (56)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 154
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,740
<NET-ASSETS> 96,797
<DIVIDEND-INCOME> 148
<INTEREST-INCOME> 243
<OTHER-INCOME> 0
<EXPENSES-NET> 441
<NET-INVESTMENT-INCOME> (50)
<REALIZED-GAINS-CURRENT> 180
<APPREC-INCREASE-CURRENT> 9,806
<NET-CHANGE-FROM-OPS> 9,936
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (3,017)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,379
<NUMBER-OF-SHARES-REDEEMED> (318)
<SHARES-REINVESTED> 236
<NET-CHANGE-IN-ASSETS> 36,264
<ACCUMULATED-NII-PRIOR> (6)
<ACCUMULATED-GAINS-PRIOR> 2,991
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 318
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 441
<AVERAGE-NET-ASSETS> 71,355
<PER-SHARE-NAV-BEGIN> 12.60
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 1.61
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.57)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.63
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 19(c)
[SteinRoe Mutual Funds Logo]
AUTOMATIC REDEMPTION SERVICES APPLICATION
This service allows for regularly scheduled redemption of
shares from a SteinRoe Fund account.
1-800-338-2550
Liberty Securities Corporation,
Distributor
Member of SIPC
<PAGE>
1 ACCOUNT REGISTRATION
Please print or type all information Also, be sure to obtain
a signature guarantee in Section 5.
__________________________________
Name of fund
__________________________________
Account number
__________________________________
Name (write exactly as it appears on your account statement)
__________________________________
Additional name if applicable
__________________________________
Address (write exactly as it appears on your account
statement)
__________________________________
__________________________________
City State Zip code
__________________________________
Daytime telephone
__________________________________
Evening telephone
2 AUTOMATIC REDEMPTION PLAN
You may have your automatic redemption proceeds: (A)
deposited directly into your checking account by electronic
transfer or (B) sent by check to the address you specify.
Complete one of the following options:
A. Deposit directly to my checking account. This option
allows you to redeem a fixed dollar amount on a schedule you
select (also complete Section 3).
Redeem ___________________________ on or about the
Amount ($50 min/$50,000 max)
[ ] 10th or [ ] 25th day of the month
every: [ ] Month [ ] Quarter [ ] Six months [ ] Year
Please begin: Immediately or ______________
(specify month)
<PAGE>
B. Check by mail. These redemptions will begin on or about
the 25th day of the month. Redeem (check one option):
[ ] $____ amount for each payment ($50 minimum)
[ ] _____ number of shares for each payment
[ ] _____% (annual rate) of my account for each payment
[ ] total account in ___ payments
every: [ ] Month [ ] Quarter [ ] Six months [ ] Year
Please begin: Immediately or ______________
(specify month)
and send the proceeds to (check one option):
[ ] (1) Address on my account registration
[ ] (2) My checking account (also complete Section 3)
[ ] (3) Other address (indicate below)
_______________________________________
Address
_______________________________________
_______________________________________
City State Zip code
3 BANK INFORMATION
Please complete this section if you chose option 2A or 2B(2).
_______________________________________
Name of bank
_______________________________________
Street address of bank
_______________________________________
City State Zip code
_______________________________________
Name(s) on checking account
_______________________________________
Checking account number ACH routing number
(Attach a voided cheek below and verify the above information
with your bank.)
Attach voided check here.
<PAGE>
4 SIGNATURES
By signing this form, you acknowledge that you have received
the current prospectus for your Fund and the SteinRoe
Services brochure and agree to be bound by their terms as
governed by Illinois law. Officers who sign must also
complete and attach the Certificate of Authorization on the
last page of the prospectus. Options you elect on this form
supersede prior elections.
__________________________________
Signature Date
__________________________________
Title (if owner is an organization)
__________________________________
Signature Date
__________________________________
Title (if owner is an organization)
5 SIGNATURE GUARANTEE
A signature guarantee is required for all options in this
application. We are unable to accept notarizations.
Signature(s) Guaranteed By:
__________________________________
Name of institution
__________________________________
Name of authorized officer
__________________________________
Signature of authorized officer
Guarantor's stamp
Please return your completed application in the enclosed
postage-paid envelope.
0892 02118
